Economy 121 11. Resource markets in the short run and long run Consider the labo

Question

Economy 121

11. Resource markets in the short run and long run

Consider the labor market for nurses. Becoming a nurse requires several years of school and training—a significant human capital investment. The following graph shows two labor supply curves for nurses: an orange supply curve labeled "S (Orange)" and a purple supply curve labeled "S (Purple)":

048121620242832364070635649423528211470WAGE (Dollars per hour)LABOR (Millions of nurses)DemandS (Orange)S (Purple)

The curves depict the supply of nurses over two time horizons: the short run and the long run. Part of your assignment is to determine which curve represents which time period.

Because the long-run supply curve for nurses isless  responsive to changes in wage than the short-run supply curve, this curve is   than the short-run supply curve.

Use the grey point (star symbol) to indicate the short-run equilibrium price and quantity of labor in the market for nurses after the increase in labor demand. Then use the black point (plus symbol) to indicate the long-run equilibrium price and quantity of labor in the market for nurses after the increase in labor demand.

Long-Run EquilibriumShort-Run Equilibrium048121620242832364070635649423528211470WAGE (Dollars per hour)LABOR (Millions of nurses)D1D2S (Orange)S (Purple)

70 63 56 S (Orange) S (Purple 4 9 3 5 2 8 S 21 1 4 7 Demand 0 Suggestions 04812 16 20 24 28 32 36 40 2 Session Timeout LABOR (Millions of nurses) 21:54

Explanation / Answer

The long run supply curve will be more elastic than the short run curve hence, the purple supply curve is the long run supply curve. S orange is the short run supply curve as in the short run labor is not so responsive to change in wages.

Blank 1:

Because the long run supply curve for nurses is ___more___ responsive to changes in wage than the short-run supply curve, this curve is ___flatter__ than the short-run supply curve.

The short run equilibrium is attained by intersection of D1 and S orange. The long run equilibrium is attained where D2 intersects S purple.

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