Supply and Demand and Luxury Goods

Topics: Supply and demand, Employment, Wage Pages: 4 (1381 words) Published: May 15, 2014
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Q4
Some workers producing non-essential luxury goods or services are paid very highly. The wage rate is not the economic value of a good or service, but more to social factors or fashion. The economic theory of wages is, therefore, of little use in explaining wage differentials. Assess this argument. Intro: Labor market supply and demand, wage determination, wage differentials general, ECONOMIC THEORY OF WAGES P1: production of luxury goods vs. other normal/inferior/Giffen/Veblen goods. Demand for this good influenced by fashion and social factors (not necessity/ income as for the other goods) help determine what might be charged for product P2: how demand for a good can impact the demand and supply of labor through MR, marginal revenue product, effect of product factor on factor reward P3: wage rate determination (just mention) perfect vs. imperfect P4: wage differentials- perfect vs. imperfect

P5: monopsony, trade union, and government intervention
P6: use of economic theory of wages in explaining wage differentials-still of some merit Conclusion: argument not supported

The economic theory of wages is applied to the Labor market and shows how the market is influenced by supply and demand for both goods and services produced as well as other factors. The market structure for which the economic theory is applied to, will also create differences in the final results. As such, wage determination and differentials as well as trade union power and monopsony power are different in imperfect markets than in perfect markets. The extent to which the economic theory of wages is of use in explaining wage differentials will be assed in this essay.

There are many types of goods that labor can produce generally, regardless of the market structure they are in. In our case, we are talking about non-essential luxury goods, which could be classified as Veblen Good. This is a high-quality good for which demand increases as the price increases,...
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