Thursday, October 1, 2015

Wages as input costs (objects) vs employees as rational entities

Wages for employment vs. wages as incentives.
Thanks, Charles

Obviously the answer is (B) an increase in wages in the automobile industry.

The supply curve being a clue that the wages are of employees, and employees are looked at in the same way as objects, inputs and therefore resources - resource costs or input costs have increased and the supply curve for automobiles shift left. 


While this question compares the wage rates between civilians and the military. The Answer is (B) a decrease in the average wage rate in civilian employment. If the average wage rate in civilian and military is $40,000 a year and the civilian average falls to $20,000. We can expect more civilians to move toward the military with the relatively higher wages. It wasn't that the price(wage) increased for soldiers its that the civilian wages fell. 
The point is that in this instance the higher relative wage is an incentive to employment, so a higher relative wage attracts more people to the profession of soldiering.  


If we are talking about someone supplying their own service as they are owners of their own labor.
As wage rates (price) increase entices more rational people toward employment and therefore quantity supply increases. Someone supplying their own labor is attracted to the higher wage rate.

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