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Question
Macroeconomics
Posted 4 months ago
If the wage rate decreases, which of the following is the most likely outcome?
Choose 1 answer:
(A) people decrease their leisure and increase their supply of labor
(B) people decide to equalize their leisure and labor usage
(C) people increase the quantity of labor supplied; firms decrease the quantity of labor demanded
(D) people don't change the quantity of labor supplied; firms increase the quantity of labor demanded
(E) people decrease the quantity of labor supplied; firms increase the quantity of labor demanded.
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Answer from Sia
Posted 4 months ago
Solution
a
Labor Supply Curve: The labor supply curve typically slopes upwards, indicating that as the wage rate increases, people are willing to supply more labor because work becomes more financially rewarding compared to leisure
b
Labor Demand Curve: The labor demand curve typically slopes downwards, meaning that as the wage rate decreases, firms are willing to hire more labor because it becomes less costly to employ additional workers
c
Impact of Decrease in Wage Rate: When the wage rate decreases, the quantity of labor supplied may decrease because workers find leisure more attractive or need to work fewer hours to maintain their utility. Simultaneously, firms will demand more labor because it is cheaper
Answer
(E) people decrease the quantity of labor supplied; firms increase the quantity of labor demanded
Key Concept
Wage Rate Impact on Labor Supply and Demand
Explanation
A decrease in the wage rate typically leads to a decrease in the quantity of labor supplied as workers may opt for more leisure, and an increase in the quantity of labor demanded as firms find it more cost-effective to hire additional workers.
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