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In labor markets, the equilibrium wage rate is determined by the demand and supply of labor. Changes in the equilibrium wage rate can be caused by shifts in labor demand. Labor demand is derived from the price of the goods being produced, leading to an increase in demand when prices rise and a decrease when prices fall. This change is due to the impact on the marginal revenue product of labor. For example, if the price of baked goods increases, the revenue earned by each additional worker in a bakery also increases, resulting in an increased demand for labor.
