Question

Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.

a. The price of oil rises.

b. New oil-drilling equipment is invented that is cheap and requires few workers to run.

c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.

d. Government imposes costly new regulations to make oil-drilling a safer job.

Short answer

a) Decrease in both wage rate & number of workers

b) Decreases both wage rate & number of workers.

c) Increase in wage rate & decrease in number of workers.

d) Decrease wage rate & increase number of workers.

Step-by-step solution

Explanation 

A] Price of oil increase leads to decrease in quantity demanded of oil. This implies that derived demand of oil labor decreases & the demand curve shifts leftwards. So, it decreases both wage rate & number of workers.

B] New equipment requiring few workers causes demand of labor to decrease & the demand curve shifts leftwards. So, it decreases both wage rate & number of workers.

C] Other working opportunities apart from oil industry leads to decrease in supply of labor in the industry, & the supply curve shifts leftwards. This increases in wage rate & decrease in number of workers.

D] Government regulations making job safer - leads to favourable change in workers preferences, so the supply increases & shifts rightwards. This decreases wage rate & increases number of workers.

Diagram 

Old equilibrium is at E, with equilibrium wage & quantity of labor = w & w'

A & B) Decrease in labor shifts demand curve leftwards to D' and new equilibrium e has equilibrium wage & quantity of workers is lesser at w' & q'

C) Labor supply decrease & leftwards shifts to S1 in supply curve establishes new equilibrium e1, with higher wage rate w1 & lesser workers q1

D) Labor supply increase & rightwards shifts to S2 in supply curve establishes new equilibrium e2, with lower wage rate w2 & more workers q2