1. Fig. 1 Product Markets and Factor Markets
Demand for Goods
and Services
Supply of Goods
and Services S D
Households
Firms S D
Supply of
Resources
Demand for
Resources
Factor Markets

2. Fig. 2 A Competitive Labor Market
Hourly
Wage LS
$12 LD
10,000
Number of
Workers

3. Fig. 3 Disappearing Wage Differentials
(b)
Hourly
Wage
Hourly
Wage B
$30 A'
$25 25 B' 20 A LD LD
Number of Elementary School Teachers
Number of Computer Systems Analysts

4. Fig. 4 The Market for Physicians
Salaries
2. AMA restrictions on the supply of physicians move the market here. C
3. Other policies to increase demand for physicians move the market here, at final wage rate W3. W3 W2 B A W1
1. Without AMA activities to increase salaries, equilibrium is here, at wage rate W1.
Number of Physicians

5. Fig. 5a Union Wage Differentials
2. A union wage of for long-haul truckers of W2 creates an excess supply of workers. LS A' W2 W1 A
1. With no labor union, both long- and short-haul truckers earn the same wage rate, W1. LD
250,000
350,000
300,000
Number of Long-haul Truckers

6. Fig. 5b Union Wage Differentials
3. Unemployed long-haul truckers move to the nonunion short-haul market, and the labor supply curve shifts rightward . . .
Wage B W1 B' W3
4. pushing the short-haul wage rate down to W3. LD
200,000
Number of Short-haul Truckers
225,000

7. Fig. 6 Employer Discrimination and Wage Rates
Sector A
(Discriminating)
Sector B
(Nondiscriminating)
Wage
Wage E' W3 F W1 W1 E W2 F' LD LD
Number of Workers
Number of Workers

8. Fig. 7 The Vicious Cycle of Discrimination
Current Job Discrimination
Lower Wage
Lower Human Capital Investment
Unemployment
Lower Skill Level
Less Job Experience
Pre-market Discrimination

9. Fig. 8a/b The Minimum Wage
Unskilled Labor Covered by Law
Unskilled Labor Not Covered by Law
Hourly
Wage
Hourly
Wage
A minimum wage raises pay, but decreases jobs in the covered sector.
Some who can't find work go to the uncovered sector, lowering wages there. LS A'
$5.15 B
4.00
$4.00 B' A LD
3.00 LD N2 N1 N3
Number of Workers
Number of Workers

10. Fig. 8c The Minimum Wage (c) Skilled Labor Hourly Wage LS $24.00 C'
20.00 C
As capital is substituted for unskilled labor, demand for skilled workers goes up, raising the skilled wage rate.
Number of Workers