Text 3(E) Labour

Text 3 (С) The Price System

The utility of a commodity is related to the Laws of Supply and Demand.

When economists talk about a Law of Supply, they mean that a rise in prices tends to increase the supply of a commodity, while a fall in prices tends to reduce it.

When they talk about a Law of Demand, they mean that the fall in prices tends to increase the demand for a commodity, while a rise in prices tends to decrease the demand. In any economic situation, a consumer will decide to buy a commodity only in terms of its particular utility to him.

So changes in market prices lead to changes in the quantity of a particular commodity made available to consumers.

Equilibrium is a combination of price and quantity at which the quantity demanded and the quantity supplied are the same. Once equilibrium is achieved, there is no incentive for producers or consumers to move away from it. An equilibrium price changes only when demand or supply changes - i.e., when the determinants of demand or the determinants of supply change.

A price that is above the equilibrium price creates a surplus, because producers are willing and able to offer more for sale than buyers are willing and able to purchase.

A price that is below the equilibrium price leads to a shortage, because buyers are willing and able to purchase more than producers are willing and able to offer for sale.

When demand changes, price and quantity change in the same direction.

When supply changes, price and quantity change, but not in the same direction. When both demand and supply change, the direction of the change depends on the relative sizes of the changes in demand and supply.

Markets may not always be in equilibrium because price changes may be costly, buyers and sellers fix prices for long periods of time, or the government may regulate prices.

Money is not only a means of exchange but is also a means of measuring the value of men's labour. In economic theory, "labour" is any work undertaken in return for a fixed payment. The work undertaken by a mother in caring for her children may be hard, but it receives no fixed payment. It is not therefore labour in the strict economic sense.

As a scientist, the economist is interested in measuring the services, which people render to each other. Although he is aware of the services, which people provide for no financial reward, he is not concerned with these services. He is interested essentially in services, which are measurable in terms of money payments for a fixed and/or regular nature. In economics, money is the standard by which the value of things is judged. This standard is an objective and scientific one.

Human labour produces both goods and services. The activities of a farm worker and a nurse are very different, but both are measurable in terms of payments received. Labour in this sense is not concerned with distinctions of social class, but simply with the payment of wages in return for work. The national labour force are those people who are available for work within the nation, i.e. the working population.

It should be noted that any person engaged in private business is self-employed and his activities are partly those of an employer and partly those of an employee. If however he employs an assistant, to whom he pays a fixed wage, his new employee provides labour in return for payment. The employer receives the surplus (large or small) from the whole business. This surplus is the reward of private enterprise and is known as profit.

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