Question

As the number of people holding college degrees increases, assuming the demand for college educated labor stays constant, the wages of college educated people would _____.
(A) increase as the supply of college educated labor increases.
(B) increase as the demand for jobs increases.
(C) decrease as the supply of college educated labor increases.

Answer 1

Answer:

(C) decrease as the supply of college educated labor increases.

Explanation:

Labour Markets: with employees as labour sellers/ suppliers & firms as labour buyers/ demanders ; are at equilibrium where Labour Demand = Labour Supply.

Labour Demand curve is downward sloping because of wage - demand inverse relationship. Labour Supply curve is upward sloping because of wage - supply direct relationship.

An increase in supply of certain labour supply shifts labour supply curve rightwards. This creates excess supply of that labour & competition among sellers (prospective employees) reduces their price i.e wage rates.

Above explanation perfectly explains the case of college degree holders, whose supply increase would lower down their wages.