Sia
Question
Microeconomics
Posted 7 months ago
Eggs are a normal good sold in a perfectly competitive market that is currently in equilibrium. The market for the labor used in egg production is also perfectly competitive.
What happens to employment and wages in the labor market if the income of egg buyers increases?
Choose 1 answer:
(A) wages increase; employment decreases
(B) wages decrease; employment decreases
(C) no effect on wages; no effect on employment
(D) wages decrease; employment increases
(E) wages increase; employment increases
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Answer from Sia
Posted 7 months ago
Solution
a
Definition of Normal Good: A normal good is one for which demand increases as consumer income rises
b
Impact on Demand: When the income of egg buyers increases, the demand for eggs, a normal good, will increase
c
Market Equilibrium: In a perfectly competitive market, an increase in demand leads to a higher equilibrium price and quantity for eggs
d
Derived Demand for Labor: The labor market for egg production is also perfectly competitive. The demand for labor is derived from the demand for eggs
e
Employment and Wages: As the demand for eggs increases, producers will need more labor to increase production, leading to higher employment and wages in the labor market
Answer
(E) wages increase; employment increases
Key Concept
Normal goods and derived demand
Explanation
When the income of consumers increases, the demand for normal goods like eggs increases. This higher demand for eggs leads to an increased demand for labor in egg production, resulting in higher wages and employment in the labor market.
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