1.3. To keep things simple, let's put this into a familiar supply-and-demand story and assume that in the long run, workers offer a fixed supply of labor: In other words, while they may be picky about jobs in the short run, in the long run they'll work regardless of the going wage.

Nominal wage Long-run labor supply

····· ... ! ....

Labor demand

(low)

o*

Quantity of labor It's the businesses who demand labor and workers who supply labor. Currently, let's assume the economy starts off at long-run equilibrium, so that the normal number of workers, Q*, are working.

c. According to the basic supply-and-demand model, what will happen to the price of labor over time as a result of this fall in labor demand?