Answer to Question #170382 in Microeconomics for Abiah Kalim

Question

Evaluate the extent to which the competitive labour market model is useful and relevant in explaining wage determination within contemporary real-world labour markets

Answer 1

In a Competitive labour market, wage is determined by the interaction between demand and supply and the employees present in the labour market. An increase in demand or a reduction in supply will raise wages whereas an increase in supply or a reduction in demand will lower wages.Therefore, the actual wage will be set in the market and the supply of labour to the market remains elastic.