In the labor market, which of the following best describes the role of wages?

• A. Wages are fixed and do not change in response to market conditions.
• B. Wages have no impact on the allocation of labor resources.
• C. Wages act as the price of labor, balancing supply and demand for workers.
• D. Wages are determined solely by government policy.

Answer: (C)

Verified step by step guidance

1. Understand that in the labor market, wages function similarly to prices in other markets, serving as a signal to both employers and workers.
2. Recognize that wages adjust based on the interaction of labor supply (workers willing to work) and labor demand (employers wanting to hire), helping to balance the quantity of labor supplied and demanded.
3. Note that if wages are too high, employers may demand less labor, and if wages are too low, fewer workers may be willing to supply their labor, illustrating the role of wages in resource allocation.
4. Acknowledge that wages are not fixed or solely determined by government policy; instead, they fluctuate due to market forces unless there are specific interventions like minimum wage laws.
5. Conclude that wages act as the price of labor, coordinating the decisions of workers and employers to efficiently allocate labor resources in the economy.