
178 Chapter 7
If for some reason, say, due to labour union pressure, wage rate is xed at OW
2
, labour demand would
decrease to W
2
A and labour supply would increase to W
2
B. It means that labour supply would exceed
the labour demand and there would be unemployment to the extent of AB. Under perfect competi-
tion, however, excess labour supply would force wage rate to decrease and hence labour demand would
increase. is process would continue until market equilibrium is not regained at point E. Similarly, if
wage rate falls down, for some reason, labour demand would increase and labour supply would decrease,
labour demand exceeding the labo ...