Cambridge International as and a level Economics Ebook

Labour supply to a firm or industry
Th
is supply curve consists of the sum of the individual 
supply curves of all workers employed in a fi rm or industry. 
It is usually upward sloping throughout (see 
Figure 8.12
). 
As with an individual worker, the number of workers 
wanting to supply their labour increases with the wage rate 
that is off ered. Th
e slope of this supply curve is measured 
by the elasticity of supply of labour, the extent to which 
labour supply responds to a change in the wage rate. 
Figure 8.12
 shows two diff erent supply curves, one 
inelastic (
L
1
) and the other elastic with respect to the 
wages being paid.
Th
ere are various reasons for this diff erence. An 
obvious one is the skills required to carry out a particular 
occupation. In general, the more skills required, the more 
205
Chapter 8: Government microeconomic intervention

---

inelastic will be the supply of labour. Th
is also applies 
to the amount of education and training that is required 
to carry out a particular job. Anyone who teaches has to 
spend at least four years aft er college acquiring the 
necessary qualifi cations. Supply to such an occupation 
will be more inelastic than to, say, road sweeping, 
where no skills and little or no education and training 
are needed.
Th
e supply curve 
L
2
in 
Figure 8.12
is therefore likely 
to be that for an industry where wages are low and where 
there is a plentiful supply of labour with no particular 
skills or training.
In a competitive labour market, the wage rates off ered 
in all other industries or occupations will be important in 
determining the supply of labour to a particular industry. 
In developing economies, an obvious example could be the 
diff erence in wages in agriculture compared with wages in 
expanding manufacturing or food-processing industries, 
which usually pay more to their workers.