Problem

1. Suppose the wage rate dropped while the employment level went up. Which curve-supply or demand-must have shifted and in which direction to produce this effect? Assume that the labor supply curve is upward sloping and the labor demand curve is downward sloping.

2. Suppose the market for economists resembles that of engineers: It takes time to produce a new economist and prospective economists base their career decisions only on current wages in the various professions. The labor supply curve of economists, however, is much more elastic than the labor demand curve. Suppose the market is now in equilibrium, but that the demand for economists suddenly rises because a new activist government in Washington wants to initiate many new programs that require the input of economists. Illustrate the trend in the employment and wage of economists as the market adjusts to this increase in demand.