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Question: In the graph below, assume that the market demand curve for labor is initially D1. The market supply curve for labor is indicated with figure "S". Wage rate is depicted on the other things held constant vertical axis (dollars per unit) ad employment level (quantity of labor) is depicted along the horizontal axis.

What are the initial equilibrium wage rate and employment level?

Other things held constant, assume that the price of a substitute resource decreases.

What will happen to demand for labor? Will it increase or decrease?

What are the new equilibrium wage rate and employment level?

Other things held constant, suppose that demand for the final product increases. Using labor demand curve D1 as your starting point, what happens to the demand for labor?

What are the new equilibrium wage rate and employment level?

Assume this industry is dominated by non-union workers. How would the equilibrium wage compare to that earned in a similar industry with similarly skilled union workers? Explain.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93118065

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