With reference to the Labour Market, consider the following statements: 1. Households are the suppliers of labour, while the demand for labour comes from firms. 2. The demand curve for labour by a profit-maximising firm is upward sloping. 3. The wage rate is determined at the intersection of the demand and supply curves of labour. Which of the statements given above is/are correct?

Correct Option The correct option is 1 and 3 only. Explanation The labour market is a specific type of factor market where the services of labour are exchanged. Unlike product markets where firms sell and households buy, the roles in factor markets are reversed based on the ownership of the factors of production. Statement-wise Analysis - Statement 1 is Correct: In the labour market, households are the owners of labour power and thus act as the suppliers. They offer their labour services in exchange for wages. Conversely, firms need labour to produce goods and services, so the demand for labour originates from them. This is known as derived demand. - Statement 2 is Incorrect: The demand curve for labour by a profit-maximising firm is downward sloping, not upward sloping. This is based on the Law of Diminishing Marginal Returns. As a firm hires more labour (while keeping capital constant), the additional output produced by each new worker eventually declines. Consequently, firms are only willing to hire additional workers if the wage rate decreases. - Statement 3 is Correct: In a competitive labour market, the wage rate is determined by the market forces of supply and demand. The equilibrium wage is found at the point where the upward-sloping labour supply curve intersects with the downward-sloping labour demand curve. At this point, the quantity of labour supplied equals the quantity of labour demanded. Key Takeaway Key Takeaway: In factor markets, households supply factors (like labour) and firms demand them. The demand curve for labour is downward sloping due to the diminishing marginal product of labour, and wages are set at the market equilibrium.

With reference to the Labour Market,… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

mcqmedium

With reference to the Labour Market, consider the following statements:

Households are the suppliers of labour, while the demand for labour comes from firms.
The demand curve for labour by a profit-maximising firm is upward sloping.
The wage rate is determined at the intersection of the demand and supply curves of labour.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Introductory Microeconomics · Page 74

Options

A1, 2 and 3
B1 and 3 only
C1 only
D2 only

Did you get this right?

Solution

Correct Option

The correct option is 1 and 3 only.

Explanation

The labour market is a specific type of factor market where the services of labour are exchanged. Unlike product markets where firms sell and households buy, the roles in factor markets are reversed based on the ownership of the factors of production.

Statement-wise Analysis

Statement 1 is Correct: In the labour market, households are the owners of labour power and thus act as the suppliers. They offer their labour services in exchange for wages. Conversely, firms need labour to produce goods and services, so the demand for labour originates from them. This is known as derived demand.
Statement 2 is Incorrect: The demand curve for labour by a profit-maximising firm is downward sloping, not upward sloping. This is based on the Law of Diminishing Marginal Returns. As a firm hires more labour (while keeping capital constant), the additional output produced by each new worker eventually declines. Consequently, firms are only willing to hire additional workers if the wage rate decreases.
Statement 3 is Correct: In a competitive labour market, the wage rate is determined by the market forces of supply and demand. The equilibrium wage is found at the point where the upward-sloping labour supply curve intersects with the downward-sloping labour demand curve. At this point, the quantity of labour supplied equals the quantity of labour demanded.

Key Takeaway

Key Takeaway: In factor markets, households supply factors (like labour) and firms demand them. The demand curve for labour is downward sloping due to the diminishing marginal product of labour, and wages are set at the market equilibrium.

Your note

More from Chapter 2: Market Equilibrium

In the context of market equilibrium, what happens when the market demand curve shifts rightward while the supply curve remains unchanged ?

easy

In a market with free entry and exit, if the demand curve shifts to the left: Statements: 1. Firms will enter the market to capture the lower price. 2. The market price will temporarily fall below the minimum average cost. 3. The supply will increase until the price returns to the minimum average cost. Which of the statements given above is/are correct?

hard

What is the primary consequence of a price ceiling accompanied by rationing?

easy

With reference to the supply of labour by an individual, consider the following statements: 1. An increase in wage rate always leads to an increase in the supply of labour hours by an individual. 2. At high wage rates, the income effect may dominate the substitution effect, leading to a decrease in labour supply. 3. The individual labour supply curve can be backward bending. Which of the statements given above is/are correct?

hard

In a perfectly competitive market, if the market price is above the equilibrium price, there will be:

easy

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