Choose the correct answer.

Adam Smith’s invisible hand theory:

1 People are naturally selfish / helpful.

2 The free market only demands what is good for society / producers.

3 When people work for their own good, they do good for consumers / society also.

In the real economy:

4 In the free market there is a demand for goods which are not expensive / necessary.

5 There is also demand for goods which are good / bad for us.

6 The market / Advertising can create demands that do not normally exist.

3. Discuss these questions with your partner.

-» Do you think most countries have a market which is free from government management?

-» Can you think of any examples supporting or disagreeing with this idea?

Text 4. The labour market

In many ways the relationship between employers and workers is similar to the relationship between consumers and producers: workers offer a service (the labour they provide), employers buy that service at a price they can afford (the wages they pay). As you can see, it's a kind of market. In economics, it's called the labour market.

In any market for products and services, consumers try to get the maximum utility, or satisfaction, from their purchase. This is the same in the labour market. What do companies want from their purchase of labour? What utility do they get? The answer is increased output. Output is how much of the product or service the company produces. If there is an increase in demand for their product, they will need to increase output. One way to do this (but not the only way) is to take on more staff. Another is to ask staff they already have to work more hours. In both cases, the company is buying more labour.

Just like any other market, the labour market obeys the laws of supply and demand. The demand is the employers' need for labour. Supply is the labour workers provide. Just like any other commodity, there is a relationship between price and demand. As the price of labour increases, the demand decreases. You can see this shown in figure 1.

The suppliers in the labour market are workers. Just like suppliers in other markets, they want ahigher price for greater supply. In other words, as supply of labour increases, they want higher wages. Again, you can see this shown in figure 1. The wage that workers get for their labour is a compromise between what they want and what companies will pay.

However, there can be shifts in demand. These shifts can cause the overall demand for labour to increase or decrease at any wage rate. For example, if there is an increase in the demand for the end product or service, there will be an overall increase in demand for labour (the demand curve shifts to the right). However, if new technology can replace workers, then there will be an overall decrease In demand for labour (the demand curve shifts to the left).

One more thing which affects demand for labour is workers' productivity. The productivity of a worker is how much they produce in a certain time. For example, imagine that a worker makes ten pencils an hour one day, and only eight pencils an hour the next day. This is a fall in productivity. When worker productivity falls, companies will pay less for labour. They are also less likely to employ new workers.

 

Exercises

I. Match the words with the definitions.

1take

2 on obey

3 utility

4 output

5 compromise

6 productivity

7 afford

8 staff

A employees

B satisfaction or usefulness

C be able to buy

Di follow

E amount produced in a certain time

F employ more staff

G both sides give up something in order to agree

H what a company produces

 

  II.Now read the text again and complete the sentences below in your own words in the space provided.

I The labour market is similar to...

Companies buy labour because they...

3 Workers want higher...

I When the price of labour rises...

Four things that cause a change in demand for labour are..,

 

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