In a perfectly competitive labour market, explain how equilibrium wages are determined by the forces of supply and demand.

The labour market is a factor market, which is a market where the factors of production are traded. The supply of labour comes from the pool of economically active citizens who want to be employed. Labour demand is derived demand, meaning that it comes from the demand for the final product labour produces. This is where consumers demand the final product, so firms demand labour relative to the level of demand for their goods.
At an equilibrium, labour supply equals labour demand. This is shown here on the diagram (will draw diagram on whiteboard during session). At this point (W*, Q*) everyone who is wanting to be employed is in work. This wage is the equilibrium wage in the labour market, which is mainly theory as government intervention through minimum wages and the influences of trade unions change this wage.