Question 2 :A decrease in the supply of labor is likely to lead to:

a. A lower equilibrium wage and lower quantity of labor employed

b. A lower equilibrium wage and higher quantity of labor employed

c. A higher equilibrium wage and higher quantity of labor employed

d. A higher equilibrium wage and lower quantity of labor employed

Question

Question 2 :A decrease in the supply of labor is likely to lead to:

a. A lower equilibrium wage and lower quantity of labor employed

b. A lower equilibrium wage and higher quantity of labor employed

c. A higher equilibrium wage and higher quantity of labor employed

d. A higher equilibrium wage and lower quantity of labor employed

BlackTom AI · Accepted Answer

Consider the scenario: a decrease in the supply of labor means fewer workers are available at each wage level. This tends to push wages up (to attract workers) and reduce the total number of workers hired if employers are limited by the reduced pool of labor.

Option a: 'A lower equilibrium wage and lower quantity of labor employed.' A lower wage would normally accompany an increase in labor supply, not a decrease. When supply falls, wages rise, so this option misstates the price mechanism and the direction of the quantity required by employers with less labor available.

Option b: 'A lower equilibrium wage and higher quantity of labor employed.' This combination is inconsistent with a reduced labor supply. Fewer workers available would not put downward pressure on wages, nor would it typically allow more workers to be employed given the same demand. The wage would more plausibly rise, not fall.

Option c: 'A higher equilibrium wage and higher quantity of labor employed.' While the wage increasing is correct with a supply drop, the quantity of labor employed does not rise when the supply is constrained; it tends to fall because there are fewer workers available to hire, all else equal.

Option d: 'A higher equilibrium wage and lower quantity of labor employed.' This aligns with standard labor-market analysis: a leftward shift in the labor supply curve raises the wage rate and, due to the reduced pool of workers, lowers the quantity of labor employed by firms.

In summary, the core idea is that a tighter labor market (less supply) raises wages to attract scarce workers, but overall employment falls because there are fewer workers to hire. The other options mix incompatible directions for wage and employment changes under a supply decrease, leading to their incorrectness.

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