ABSTRACT
The usefulness of the theory of demand and supply in explaining a wide variety of phenomena related to labor markets should be clear. This chapter seeks to build a firmer foundation for demand and supply curves. With this foundation a number of labor market and income distribution issues can be better understood. To build this foundation, the chapter uses two venerable models from the mainstream of economic theory. The Marginal Productivity Theory of Distribution is used to derive the firm's demand for labor. The market demand curve is shown to be the summation of the firms' demand curves. The theory of rational choice is used to derive the individual's supply curve of labor. Putting demand and supply together will yield the price and utilization of both factors for starters, and, with suitable extensions of the theory, everything else will follow.
