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Question
Microeconomics
Posted 4 months ago
What happens to employment and wages in Maxistan if the preference for leisure increases at the same time worker productivity decreases?
Choose 1 answer:
(A) wages increase; employment increases
(B) wages decrease; employment decreases
(c) wages decrease; the effect on unemployment is indeterminate
(D) the effect on wages is indeterminate; employment decreases
(E) wages decrease; employment increases
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Answer from Sia
Posted 4 months ago
Solution
a
Preference for Leisure: When the preference for leisure increases, workers are less willing to work at any given wage rate. This typically shifts the labor supply curve to the left
b
Decrease in Worker Productivity: A decrease in worker productivity means that each worker produces less output. This typically shifts the labor demand curve to the left because firms are less willing to hire workers at any given wage rate
c
Combined Effect on Wages: Both the leftward shift in labor supply and labor demand curves generally lead to a decrease in wages
d
Combined Effect on Employment: The leftward shift in both curves also generally leads to a decrease in employment
Answer
(B) wages decrease; employment decreases
Key Concept
Labor Supply and Demand Shifts
Explanation
An increase in the preference for leisure shifts the labor supply curve to the left, while a decrease in worker productivity shifts the labor demand curve to the left. Both shifts typically result in lower wages and lower employment.
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