The Bureau of Labor statistics identifies a trend in the labor market for doctors, where wages have increased significantly over the past several years. As a result of this trend, more individuals within the economy enter the labor market to become doctors. How does this influence wages and employment within the labor market?
A. The market equilibrium wage will decrease, and the equilibrium quantity of labor will decrease.
B. The market equilibrium wage will increase, and the equilibrium quantity of labor will increase.
C. The market equilibrium wage will decrease, and the equilibrium quantity of labor will increase.
D. The market equilibrium wage will increase, and the equilibrium quantity of labor will increase.
C. The market equilibrium wage will decrease, and the equilibrium quantity of labor will increase.
This scenario is representative of a typical supply and demand reaction in the labor market, based on the principles of supply and demand for labor. An increase in wages for doctors acts as an incentive that attracts more individuals into the profession. As more individuals enter medical schools and eventually the market as qualified doctors, the supply of doctors increases.
When the supply of labor increases (assuming the demand for doctors remains the same or does not increase as fast as the supply), the increased competition among doctors will typically lead to a decrease in the market equilibrium wage because there are more doctors available than are needed at the previous higher wage rate. Employers thus have more choice and can offer lower wages since the supply of labor exceeds the demand.
At the same time, the equilibrium quantity of labor will increase because there are more doctors available and willing to work at the new, lower market wage. This new equilibrium reflects a higher quantity of employment at a lower wage than before, assuming demand remains constant or does not significantly shift due to other factors.