The table shows the hours of labour demanded by firms and supplied by households at different wage rates in a perfectly competitive labour market.
| Wage rate (Rs per hour) | Labour demanded (hours) | Labour supplied (hours) |
|---|---|---|
| 100 | 900 | 500 |
| 150 | 800 | 600 |
| 200 | 700 | 700 |
| 250 | 600 | 800 |
What is the equilibrium wage rate, and what is the situation in the labour market at a wage of Rs 150?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 200; excess demand for labour of 200 hours
The wage is set where labour demanded equals labour supplied. That happens at Rs 200, where both are 700 hours.
At Rs 150, firms want 800 hours but households offer only 600 hours.
\( 800 - 600 = 200 \)
Demand is more than supply, so there is an excess demand for labour of 200 hours.
NCERT (2026-27): “Wage Determination in Labour Market Here we will briefly discuss the theory of wage determination under a perfectly competitive market structure using the demand-supply analysis. The basic difference between a labour market and a market for goods is with respect to the source of supply and demand. In the labour market, households are the suppliers of labour and the demand for labour comes from firms whereas in the market for goods, it is the opposite. Here, it is important to point out that by labour, we mean the hours of work provided by labourers and not the number of labourers. The wage rate is determined at the intersection of the demand and supply curves of labour where the demand for and supply of labour balance.” “5.1 Equilibrium, Excess Demand, Excess Supply … If at a price, market supply is greater than market demand, we say that there is an excess supply in the market at that price and if market demand exceeds market supply at a price, it is said that excess demand exists in the market at that price. Therefore, equilibrium in a perfectly competitive market can be defined alternatively as zero excess demand-zero excess supply situation.” |