According to a 2016 article in the Wall Street Journal, “After years of relative equilibrium, the job market for nurses is heating up in many markets, driving up wages and sign-on bonuses for the nation’s fifth-largest occupation.” Many nurses who previously delayed their retirement due to the 2008 recession had begun to retire, resulting in a retirement wave that caused nurses to exit the workforce in greater numbers than new nurses were entering. At the same time, demand for nurses had increased due to the additional health care coverage associated with job growth over the previous decade since the recession and the Affordable Care Act. a. Draw a demand and supply graph illustrating these developments in the market for nurses. b. Based on your diagram, forecast what will happen to the equilibrium wage for nurses as a result of the shift(s)? Is this consistent with what we actually observed? c. Briefly discuss whether this problem provides enough information to determine whether the equilibrium quantity of nurses increased or decreased. Source: Melanie Evans, “Nurses Are Again in Demand,” Wall Street Journal, November 7, 2016, https://www.wsj.com/articles/nurses-are-again-in-demand-1478514622. 8. Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a. The market for steel in the United States: Fuel efficiency regulations have reduced the use of steel in automobile production and increased the use of lighter materials such as aluminum AND import restrictions limit the amount of steel that can be imported into the United States. b. The market for international airline tickets: Incomes decline due to a recession AND Norwegian Airlines adds more U.S. cities to its list of international flight destinations.
The Correct Answer and Explanation is:
Let’s break down each part of the question with diagrams and a full explanation:
1. Nurse Labor Market:
a. Graph Illustration:
- Supply Curve (S) shifts leftward: Retirement of older nurses reduces supply.
- Demand Curve (D) shifts rightward: More demand due to ACA and job growth.
Wage
|
| S1 S0
| \ /
| \ /
| \ /
| X ---> New equilibrium (higher wage)
| / \
| D0 / \ D1
|___________|________________ Quantity of Nurses
b. Forecasting Equilibrium Wage:
With supply decreasing (fewer nurses) and demand increasing (more healthcare demand), both shifts lead to a higher equilibrium wage for nurses.
This matches real-world data cited in the 2016 article:
- Higher wages
- More sign-on bonuses
- Increased demand for labor
Thus, the theoretical model aligns with observed outcomes.
c. Equilibrium Quantity of Nurses:
We cannot determine the direction of the equilibrium quantity change without more data. Why?
- If demand shift is stronger than supply decline → Quantity increases
- If supply falls more sharply than demand rises → Quantity decreases
Hence, equilibrium quantity is ambiguous without knowing which shift dominates.
2. Comparative Statics Diagrams:
a. Steel Market:
- Demand shifts left due to less use in cars.
- Supply shifts left due to import restrictions.
Price
|
| S1 S0
| \ /
| \ /
| X --> New equilibrium
| / \
| D1 / \ D0
|__________|________________ Quantity
- Equilibrium price: Ambiguous (depends on shift sizes).
- Quantity: Definitely decreases (both D and S shifted left).
b. International Airline Tickets:
- Demand shifts left (recession, less income).
- Supply shifts right (more flight routes from Norwegian Airlines).
Price
|
| S0 S1
| \ \
| \ \
| X-----> New equilibrium
| / \
| D1 / \ D0
|__________|________________ Quantity
- Price: Falls (demand falls, supply increases).
- Quantity: Ambiguous (depends on strength of shifts).
Summary:
- In the nurse labor market: Wages rise, quantity unclear.
- In the steel market: Quantity falls, price ambiguous.
- In airline tickets: Price falls, quantity ambiguous.
This analysis highlights how supply and demand shifts affect market outcomes and why understanding the relative magnitude of shifts is critical for accurate predictions.