7. The demand for labor is derived demand, derived from the demand for the final product. All else being equal, a firm which sells a product with inelastic demand will have a more inelastic demand for labor than a firm whose product is elastically demanded. Industry A sells an expesive product with many substitutes, a product which will be elastically demanded. B sells an inexpensive, addictive product, for which substitutes don't exist, so it will be inelastically demanded.

   An increase in non-labor income will shift back the supply of labor to both industries. The leftmost of the two graphs shows the effect of the reduced supply for Industry A, and the right one shows the effect for industry B. Because output demand is elastic in industry A so is labor demand illustrated by the labor demand curve DLA. In industry B output demand is inelastic causing labor demand to be inelastic as well, illustrated by labor demand curve DLB. The result is that equal supply shifts from SL1 to SL2 have different results. In industry A numbers of workers hired drops dramatically and wages rise only slightly. In industry B wages increase dramatically and numbers hired drop only slightly.

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