What occurs in the labor market when the prevailing wage (price) exceeds the equilibrium wage...
Question:
What occurs in the labor market when the prevailing wage (price) exceeds the equilibrium wage (price)?
a) Unemployment rises
b) A shortage occurs
c) A surplus arises
d) Unemployment falls
Demand and Supply of Labor in the Market:
The labor market works similarly to the commodity markets and is governed by the forces of demand and supply at the wage rate. As far as employment determination is concerned, there are two major theories, one being Classical theory of employment and the other being Keynesian theory of employment. Classical theory of employment is governed by laissez faire principles and completely depends upon the market forces. The classical economists believed that the market forces work in a manner which automatically restores the equilibrium conditions in the economy, at which point all workers are employed and there exists no involuntary unemployment. However, Keynes believed that wages and prices are sticky, which will not fully incorporate the changes in the economy to adjust to the equilibrium conditions; thus, the economy will experience underemployment.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerWhen the prevailing wage rate exceeds the equilibrium wage rate: (A) Unemployment Rises
Reason:
 |
As...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Sticky Wages and Prices: Effect on Equilibrium
from
Chapter 7 / Lesson 9
18K
Understand what sticky wages and sticky prices are. Comprehend wage rigidity. Discover why sticky wages and prices are important in Keynesian decision-making.
Related to this Question
- When the minimum wage is above the equilibrium wage, what occurs? a. There will be a shortage of labor. b. There will be no effect on the number of people employed. c. There will be an increase in the unemployment rate. d. There will be a decrease in the
- Suppose a particular labor market was in a market-clearing equilibrium. What could happen to cause the equilibrium wage to fall? Suppose price levels were rising each year, but money wages were "sticky downward" and never fell. How would real wages in thi
- If there is a surplus in labor, what is a possible result? A. unemployment may be low B. wages paid would increase C. wages paid would decrease D. wages would be at equilibrium
- If wages are below the wage level that causes supply to equal demand, then there is: A. excess supply for labor B. excess demand for labor C. a market equilibrium D. unemployment
- In a competitive labor market, if the supply of labor decreases, how will the equilibrium wage rate and employment change? a) Wage Rate: Increase; Employment: Increase b) Wage Rate: Increase; Employment: Decrease c) Wage Rate: Decrease; Employment: Increa
- A minimum wage that is set below a market's equilibrium wage will result in A. an excess demand for labor, that is, unemployment. B. an excess demand for labor, that is, a shortage of workers. C. an excess supply of labor, that is, unemployment. D. None o
- For a given labor supply, would the potential unemployment impact of an increase in the minimum wage be greater in the case of elastic or inelastic demand for labor? Explain.
- If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?
- What happens to the monopsony equilibrium if the minimum wage is set slightly above or below the competitive wage? Assume that the monopsonist's demand for labor is given by W = 20 - 0.5QL and that th
- If the demand for labor increases, there will be a A) shortage of workers, and the equilibrium wage will fall. B) shortage of workers, and the equilibrium wage will rise. C) surplus of workers, and the equilibrium wage will fall. D) surplus of workers
- Which of the following is NOT a consequence of imposing a legal minimum wage? A. Labor surplus B. Unemployment rises C. Unemployment falls D. Higher prices
- Involuntary unemployment a) occurs when the wage rate is below the equilibrium wage rate. b) exists when there is a shortage of labor. c) will increase as the wage rate falls. d) exists when there is an excess quantity of labor supplied.
- Unemployment that is a result of a wage above the equilibrium wages is A. a surplus of workers B. a market clearing wage C. an example of a price ceiling D. a shortage of workers
- An increase in the minimum wage will tend to cause which of the following to occur? A. a leftward shift in the demand for labor B. a reduction in the unemployment rate C. a rightward shift in the supply of labor D. an increase in the size of the surplus o
- The demand for labor falls if: A. labor productivity falls. B. the price of the good produced by labor rises. C. the price of a complementary input falls. D. demand for the good produced by labor rises. E. a minimum wage is removed from the labor market.
- If the labor supply curve shifts to the left, the equilibrium real wage does what, and the equilibrium level of employment does what? A. rises, rises B. falls, rises C. rises, falls D. falls, falls
- When the price level and the money wage rate rise by the same percentage, unemployment _ _ _ _ _ _ _ . When the price level rises but the money wage rate remains unchanged, unemployment _ _ _ _ _ _ an
- How do supply and demand affect minimum wage and unemployment?
- Which of the following is an effect of a minimum wage law that establishes a ceiling wage below the current market-clearing wage? a. surplus labor, or unemployment b. a decrease in the market-clearing wage c. a decrease in the quantity of labor supplied d
- When a minimum wage is set above the equilibrium wage rate, a) unemployment decreases. b) job search activity decreases. c) the supply of workers decreases. d) unemployment increases. e) the supply of workers increases.
- In a competitive labor market, an increase in the equilibrium wage rate could result from: a. a decrease in the demand for labor. b. an increase in the supply of labor. c. an increase in the demand for labor. d. a decrease in the number of workers represe
- An increase in the minimum wage will tend to cause which of the following to occur? a. A leftward shift in the demand for labor b. A reduction in the unemployment rate c. An increase in the size of the surplus of labor d. A rightward shift in the suppl
- It is very common to see the unemployment rate actually increase as the economy begins to recover (i.e., after the trough). What causes the unemployment rate to rise at this time? a. Structural unemployment increases b. Cyclical unemployment increases
- Explain the amount of unemployment created by an increase in the minimum wage that depends on the elasticity of labor demand.
- If the equilibrium wage is below the actual wage: A) The wage rate will fall. B) The demand for labor wil decrease. C) The wage rate will rise. D) The demand for labor will increase.
- Suppose that in a competitive output market, firms hire labor from a competitive labor market. If the supply of this kind of labor decreases, we would expect which of the following regarding the equilibrium wage, w, and the equilibrium quantity of labor,
- Explain if the government imposed a minimum wage above the equilibrium wage, what would be expected to happen to the result of the shortage of jobs as time progresses?
- Suppose a minimum wage is set at a level above the equilibrium wage. Which of the following describes the unemployment created that is associated with movement along the demand curve for labor? a. workers who used to work, but are laid off b. individuals
- Which of the following determines equilibrium wages in perfectly competitive labour markets? a. The government. b. Monopoly employers. c. Where the supply and demand of labor are equal. d. The requirements of a living wage.
- What would be the impact of an increase in the minimum wage on demand and supply for labor and the overall market?
- The natural rate of unemployment is the rate of unemployment A. that occurs when the money market is in equilibrium. B. that occurs when the markup of prices over costs is zero. C. where the markup of prices over costs is equal to its historical value.
- Which of the following is an effect of a minimum wage law that establishes a minimum wage below the current market clearing wage? a. A decrease in the quantity of labor supplied b. A decrease in the market clearing wage c. Surplus labor, or unemployment
- Explain why the amount of unemployment created by an increase in the minimum wage depends on the elasticity of labor demand.
- Which of the following would not shift the market demand for labor, ceteris paribus? A. The wage paid to labor. B. The demand for final products. C. The productivity of labor. D. The number of employers.
- Demand for labor is decreasing for any given real wage. a. Explain two reasons why an economy might see a decrease in the demand for labor. b. Using the relevant graphs, show and explain the effect on wage, employment, unemployment, and potential GDP. c.
- Which of the following determines equilibrium wages in perfectly competitive labor markets? a. The government. b. Monopoly employers. c. Where the supply and demand of labor are equal. d. The requirements of a living wage.
- Suppose a stock market boom raises people's wealth. In a competitive labor market, how will this change the equilibrium real wage and level of employment?
- If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? 1) Graph a new labor supply curve that has shifted to the right as described abov
- What is the effect of change in wage rate on demand for labor in perfectly competitive market?
- If the minimum wage is set above the equilibrium wage, what do we expect to happen? A. Wages and unemployment will fall. B. Wages will rise and unemployment will fall. C. Wages will fall and unemployment will rise. D. Wages and unemployment will rise. E.
- If workers become discouraged, what will happen to the unemployment rate, ceteris paribus?
- If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market? a. an increase in demand for unskilled labor b. a decre
- Initially the market for labor is in equilibrium, and then laborers suddenly are willing to work more hours. In that case, what happens to the equilibrium wage? and the quantity of workers employed? a
- If money wages are rising faster than output price: a. what is happening to real wages? b. what would happen to unemployment as a result? c. what would happen to SRAS as a result?
- Explain what happens to the short-run aggregate supply (SRAS) curve if wage rates decline.
- In a monopsony model of a labor market, as more labor is hired, the marginal factor cost of labor: a. rises. b. is constant. c. is zero. d. decreases.
- Which of the following summarizes the impact of population growth on the labor market? A.) This will increase the labor supply, reduce the equilibrium wage, and increase the quantity of labor demande
- What would the effect of increasing the minimum wage on the unemployment rate and labor market, if the minimum wage was binding? Explain
- Suppose a minimum wage is set at a level above the equilibrium wage. Which of the following describes the unemployment created that is associated with movement along the supply curve of labor? a. workers who used to work, but no longer can find employment
- The supply curve for labor in a purely competitive market slopes upward because: a. the wage rate paid to workers falls as more are hired. b. the marginal product of labor falls as output increases. c. marginal resource cost rises as productivity increase
- Suppose an economy is initially operating at full employment. An increase in aggregate demand that takes short-run equilibrium to a point beyond the economy's potential output most likely results in what?
- What will happen to inflation and output when the unemployment rate is above the natural rate of unemployment?
- if wage increase from 10 to 20 and employment decrease from 60 to 15, what is the elasticity of labor demand?
- What is the expected effect of an increase in unemployment benefits on equilibrium output and the equilibrium price level in the medium run? A) Neither prices nor output will change B) Prices will increase while output will remain the same C) Prices will
- Consider a competitive labor market. The likely consequence of a binding minimum wage in this labor market is: a. a labor shortage. b. a lower wage for all individuals. c. a higher wage for all individuals. d. excess demand for workers. e. unemployment.
- What is the effect of the following market structure on the equilibrium wage and on the level of employment: Monopsony.
- In the labor market, if the government imposes a minimum wage that is above the equilibrium wage, then: a. some workers who would like to work for the minimum wage cannot easily find jobs. b. unemployment will decline as a result. c. nothing will happen t
- Minimum wages create unemployment in markets where they create a? (i) shortage of labor. Minimum wage laws are the predominant reason for unemployment in the U.S. (ii) shortage of labor. Minimum wage laws are not the predominant reason for unemployment
- Consider the labor market. Begin with the labor market in equilibrium. Now, suppose, there is an increase in the productivity of labor. It will cause employment to A. increase. B. decrease. C. remain unchanged. D. be Indeterminate.
- The unemployment rate is the percentage of workers seeking a job at the prevailing wage, but who are unable to get one. When a minimum wage is imposed, it creates some unemployment among minimum wage workers. Suppose that the demand for labor is given by
- The intersection between labor supply and labor demand determines the equilibrium wage and the equilibrium level of employment. Why might some firms pay workers a wage above the market equilibrium, ev
- Explain the effect of a wage increase on the supply of labor at the market level.
- Which of the following causes of unemployment is not associated with an excess supply of labor? A. Minimum wage laws B. Efficiency wages C. Frictional D. Unions
- Refer to the Figure below. If the economy was initially at full employment output and then experienced a 1 percent decrease in unemployment, what would happen to the price level? a) The price level would be unchanged, b) The price level would increase by
- Efficiency wages are set: a. above the equilibrium wage and create a shortage of labor b. above the equilibrium wage and create a surplus of labor c. below the equilibrium wage and create a shortage of labor d. below the equilibrium wage and create a surp
- Assume that the labor market is defined as follows What will be the result of a government imposed minimum wage at 15 The gain to those workers who keep their jobs is 50
- 1. Refer to the figure above. If there is downward wage rigidity in the market, what will the unemployment in the market be after the demand curve shifts to LD_2? A. 15 units of labor B. 20 units of labor C. 5 units of labor D. 10 units of labor 2. Refer
- According to classical theory, if the aggregate demand curve decreased and the economy experienced unemployment, then: a. the supply of money would increase until the economy returned to full employment. b. prices and wages would fall quickly to restore f
- If a monopsony labor market suddenly were transformed into a perfectly competitive labor market, how would the wage and employment change? A. Both would increase. B. Both would decrease. C. The wage would remain constant, but employment would increase. D.
- A. How do Minimum Wage Laws affect the equilibrium in the Labor Market? B. For your selected product, if the government places a mandated price above the equilibrium price, how would this affect the market equilibrium? C. Would you rather have the forces
- 1) Explain the role of labor supply and labor demand in determining the incentives to return to equilibrium. 2) Explain why unemployment falls when output rises. In the process, mention what happens to unemployment. 3) What factors determine the job-fin
- Ceteris Paribus, if workers and firms expected prices to rise by 2% but instead they rise by 3%, what would happen to employment? What would happen to real output?
- What happens to the wage rate, with respect to the Solow Model, when there is an increase in labor supply?
- Why is the supply curve of labor usually upward sloping? a. As the wage increases, the opportunity cost of labor increases, causing individuals to devote more time to work, b. As the wage increases, purchasing power increases, causing individuals to devot
- What happens to inflation and unemployment during the business cycle?
- Consider the perfectly competitive labor market with labor demand L^D = 100 - 2Q and labor supply L^S = 20 + 2W. Suppose the government implemented a minimum wage of $25. What is the impact on average wages and unemployment?
- Consider a labor market in equilibrium. If both the demand curve and supply curve of labor shift to the right, then the number of workers hired in the market will: A) increase B) decrease C) remain unchanged D) either increase or decrease or remain unchan
- The aggregate supply curve becomes increasingly inelastic as the economy: a. has an increase in cyclically unemployed workers. b. has an increase in discouraged workers. c. has an increase in employed workers. d. none of the above
- Explain how minimum wage in a competitive market creates unemployment.
- Assuming the economy is at equilibrium, what will happen to the income of labor currently making minimum wage if hourly rate increases? Also, will all, some, or none of this labor earn a higher income
- Suppose the unemployment rate is 8%, and the labor force is 20 million. If the number of encouraged workers rises by 100,000, the unemployment rate becomes: a) 7% or less. b) between 7% and 8%. c) 8%. d) greater than 8%.
- Which of the following effects does raising the minimum wage have on unemployment? (a) Decreases unemployment (b) Increases unemployment
- What happens to the supply curve when wages decrease?
- The minimum wage likely has what effect on the labor market for orthopedic surgeons? a. The minimum wage would cause unemployment in the market. b. The minimum wage would create a surplus in the market. c. The minimum wage likely does not impact the marke
- If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will [{Blank}] the number unemployed. a) increase, b) decrease, c) not change, d) possibly increase, decrease, or leave unchanged.
- Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is W=P(1-u), where u is the unemployment rate. a. What is the real wage, as determined by the price
- Define unemployment and explain the factors influencing demand and supply of labor market using a graph.
- Define unemployment and explain the factors influencing demand and supply of the labor market using a graph.
- Which of the following events may increase the marginal product of labor? a) A decrease in the wage rate. b) Good weather causes an increase in supply and a fall in price for one of the inputs used to
- Which of the following can cause the real wage rate to be set above the equilibrium full-employment level? a. An efficient wage b. A minimum wage c. A union wage d. All of the above A real wage rate
- People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as: A. cyclically unemployed B. structurally unemployed C. frictionally unemployed D. discouraged wo
- In the wage-setting relation, the nominal wage tends to decrease when: a. The minimum wage increases b. The price level increases c. Unemployment benefits decrease d. The unemployment rate decreases e
- What happens to output and unemployment during a recession? Increase or decrease?
- 1. As the wage rate increases, a. the demand for labor decreases b. the demand for labor increases c. the quantity demanded for labor decreases d. the quantity demanded for labor increases 2. Monopoli
- Downward wage rigidity is likely to A) increase unemployment B) increase wage rates C) decrease wage rates D) decrease unemployment
- Given Ld=600 - 2W and Ls = 100 + 2W: a. Solve for the market equilibrium wage and number of employees b. Suppose there is a minimum wage of $150. What is the surplus (unemployment) with the minimum wa
- Suppose the wage increases. What effect will this have on a worker's labor supply? The substitution effect of a wage increase causes the worker to supply _____ quantity of labor.
Explore our homework questions and answers library
Browse
by subject