Question

When a union raises the wage above the equilibrium level, a. the quantity of labor supplied falls and unemployment rises. b. both the quantity of labor supplied and unemployment rise. c. both the quantity of labor supplied and unemployment fall. d. the quantity of labor supplied rises and unemployment falls.

Answer 1

b. both the quantity of labor supplied and unemployment rise

Step-by-step explanation:

The labor market operates under the logic of balancing labor supply and labor demand. The adjustment vector for this balance is the price of wages. When a union of unions forces wages up, naturally more workers will offer work because they see an opportunity that benefits them. However, the higher salary is a cost to firms, which have hired fewer employees and eventually fired. Therefore, both labor supply and unemployment increase.