Sia
Question
Microeconomics
Posted 7 months ago
Shark repellent is exchanged in a perfectly competitive market, and firms in this market hire labor in a perfectly competitive labor market.
Which of the following would cause employment in this industry to decrease?
Choose 1 answer:
(A) The price of shark repellant decreases.
B The cost of a substitute in production increases.
(c) Many unskilled workers enter the labor market.
D) There is an increase in the demand for labor.
(E) Worker productivity increases.
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Answer from Sia
Posted 7 months ago
Solution
a
Decrease in Price: When the price of shark repellent decreases, the revenue for firms in the market also decreases. This leads to a reduction in the demand for labor as firms try to cut costs
b
Labor Demand Curve: In a perfectly competitive labor market, the demand for labor is derived from the marginal revenue product (MRP) of labor. A decrease in the price of the product (shark repellent) reduces the MRP, shifting the labor demand curve to the left
c
Employment Impact: As the labor demand curve shifts left, the equilibrium quantity of labor employed decreases, leading to a reduction in employment in the industry
Answer
(A) The price of shark repellant decreases.
Key Concept
Derived Demand for Labor
Explanation
The demand for labor is derived from the demand for the product it helps produce. A decrease in the price of shark repellent reduces the marginal revenue product of labor, leading to a decrease in the demand for labor and thus a reduction in employment.
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