Practice question · Multiple choice
Labour demand is called a derived demand. What follows for a worker whose employer's product suddenly falls out of fashion?
Hints
- What does a firm actually pay for when it hires? Ask what it does with the output.
- The worker produces the same number of units. What changed about their value?
Show the answer
C. Their wage can fall despite unchanged skill and effort
Why
Firms hire up to where the wage equals the value of the last worker's output, and that value contains the product price, so a demand collapse cuts the wage with the worker's skill untouched. It is why 'my wage should reflect how hard I work' misdescribes the mechanism, and why industry choice matters as much as effort.
Practise Factor Markets
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