Please explain how change in one (Labor Market, product market & capital market)
ID: 1199022 • Letter: P
Question
Please explain how change in one (Labor Market, product market & capital market) affect the other two
Using the Classical Full-Employment Model, demonstrate via the three diagram setup (labor market, product market & capital market) the impact of:
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Explanation / Answer
Change in Labour market, affect product market and capital market and other way round. Any change in onemarket has its impact on other two because three markets are integrated.
Labour market determines wage rate
Wage rate affect the cost of production and thereby product market by affecting supply curve.
Capital market determines interest rate. Interest rate affects cost of production as well as demand by people as it affects their credit taking capacity and cost of availing credit.
Therefore, Any change in one market will bring a chain of reactions which will affect other two markets.