The determination of wages in a labour market depends on the_______

Analyze the question The question asks what determines wages in a labour market. The key phrase is "labour market." In any market, price is set by market forces, and the price of labour is the wage.

Explain the concept In economics, wages are the price paid for labour. Like the price of any good, the wage rate in a free labour market is set by:

• Demand for labour: this comes from employers (firms). It depends on how productive workers are, which is the marginal revenue product of labour. Employers will pay more when workers add more to output.
• Supply of labour: this comes from workers. It depends on how many people are willing and able to work at each wage rate. A higher wage generally attracts more workers.

The equilibrium wage is where the quantity of labour demanded equals the quantity supplied.

Step-by-step solution

1. The question is about a labour market, so market forces apply.
2. Wage is the price of labour, and price is determined by demand and supply.
3. Check the options: • A. Government: it can intervene, for example with a minimum wage, but it does not normally determine wages in a free labour market. • B. People: too vague, since it doesn't name the economic mechanism. • C. Interaction between demand and supply of labour: this is the standard economic explanation of wage determination. • D. Economy: too general and not a specific determinant. 4.

Tip: In "determination of price" questions (wages, rent, interest rates, commodity prices), the answer is usually the interaction of demand and supply. Remember: wage = price of labour, so demand and supply decide it.