Suppose the supply of some factor increases. The relative size of the effect on wages and hiring will differ depending on the elasticity of factor demand.

    When supply shifts from S1 to S2 wage only falls slightly (from W* to WE) if demand is elastic as it is along DE. However the same supply shift leads to a large drop in wages (from W* to WI) if factor demand is inelastic as along DI.

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