Q2 THE LABOUR MARKET MODEL The diagram below shows the labour market equilibrium Point X. Labour supply Average product of labour, A Real wage CO X Price-setting curve Wage-setting curve No work done: wage is too low for adequate effort Employed Unemployed Employment, N a. Explain why the wage-setting curve is upsloping. b. Explain what the price-setting curve represents. c. The COVID-19 pandemic and resulting government restrictions caused dramatic decreases in aggregate demand across the world, including in Australia. This in turn led to increased unemployment, represented by the economy moving from X to B, assuming that the labour market was in the labour market equilibrium before COVID-19. Explain how the automatic adjustment back to the equilibrium could occur through a process of wage and price cuts