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The supply and demand model is an economic model for price determination. Supply refers to the amount of product or services that a market is able and ready to offer, while demand is the quantity of such product or services which is desired by the consumers in the market. Minimum wage is the least remuneration, which the employers can lawfully pay their employees. Alternatively it is the price base under which the workers may not sell their labor.Relating minimum wage to the supply and demand model shows the quantity of labor required by the employers as compared to what the workers are willing to supply at different wage rates. This paper will expound on application of minimum wage and organ sale on the supply and demand model.
Application of Minimum Wage on supply and demand model
Minimum wage affects the labor market by influencing the demand and supply of labor. In a labor market, the law of demand and supply applies just like in the product market. When there is a higher price for labor in the labor market, the amount of labor demanded by firms decline. Similarly, higher wages increases the amount of labor being supplied while lower price lead to low supply of labor. For example, if the minimum wage for nurses is low, only a few people will be willing to take up nursing as a profession hence, lowering the supply for such labor. Therefore, the level of minimum wage directly affects the market forces through the demand and supply in a labor market.
Also a change in wage rate will cause either an upward or a downward movement along the demand curve. Changes in other factors affecting labor demand will result in a shift to the right or left of the demand curve. A labor demand curve shows the number of workers firms are willing to employ at any given wage rate. Higher wage rates increases the production costs for the employer which in turn reduces the demand for labor (Neumark&Wascher 39). When the wage rates decline, the employers demand for labor increases resulting in a downward movement along the demand curve.
At equilibrium of the labor market, the demand for labor equals the supply. This means that the employers who wish to recruit at that equilibrium wage rate can get a willing worker. In case the minimum wage is set above equilibrium, the employers have to lay off some workers or else they will incur high production costs. Wages above the equilibrium will happen when the demand for labor exceeds its supply. When the supply exceeds demand for labor, the minimum wage declines, which can only take economic incentives to move the wages towards the equilibrium.
Application of organ sale on supply and demand model
Organ sale is the trade of human body parts, tissues or organs for transplantation. The supply of healthy organs available for transplantation in the world is extremely low compared to their demand (Cherry 2).As the law of supply states that producers tend to supply more of their products when the prices are high to gain more revenue. Offering monetary compensation to the owners for organs donated would encourage them and thereby increasing the quantity supply to meet recipients’ demand.
Movement along the supply curve will occur depending with the price or availability of compensation to the donors for the organs. When there is little or no compensation, the supply will be low and no movement along the curve. Compensation for organs will cause an upward movement along the supply curve indicating increased supply. Equilibrium in organ sale can be reached when the number of organs demanded by recipients equals the number of organs available for transplant. To achieve equilibrium the price set for the organs must be acceptable to both the suppliers and the recipients.
Similarities and differences
Both the minimum wage and organ sale affect the supply curve, demand curve and the equilibrium. Excess supply or demand in either causes disequilibrium on AS-AD model and equilibrium in each is attained by adjusting wages or prices respectively. They differ in that adjustment of wages will cause movement along the demand curve as producers demand for labor depending on level of wage. On the other hand, in organ sales, adjustment in prices will cause movement along the supply curve as higher compensation will attract more donors.
- Neumark, David, and William L. Wascher. Minimum Wages. The MIT P, 2008.
- Cherry, Mark J. Kidney for Sale by Owner: Human Organs, Transplantation, and the Market, 2016.