The firm may be earning excessive profits, but that is a different topic of discussion.

What Determines the Going Market Wage Rate?

In the chapter on Labor and Financial Markets, we learned that the labor market has demand and supply

curves like other markets. The demand for labor curve is a downward sloping function of the wage rate. The

market demand for labor is the horizontal sum of all firms’ demands for labor. The supply of labor curve is an

upward sloping function of the wage rate. This is because if wages for a particular type of labor increase in a

particular labor market, people with appropriate skills may change jobs, and vacancies will attract people from

outside the geographic area. The market supply of labor is the horizontal summation of all individuals’

supplies of labor.

Access for free at openstax.org
14.2 • Wages and Employment in an Imperfectly Competitive Labor Market 331
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