The figure given below shows the demand curves (D1 and D2) and supply curves (S1
ID: 1206723 • Letter: T
Question
The figure given below shows the demand curves (D1 and D2) and supply curves (S1 and S2) of labor in the labor market.
Figure: 16.2
According to Figure 16.2, assume that the market is at an initial equilibrium in which the labor supply is S1 and the labor demand is D1. The labor supply curve shifts from S1 to S2 but the wage remains unchanged at its previous equilibrium level. Which of the following is true?
a. There is a shortage of 20 workers.
Figure: 16.2
According to Figure 16.2, assume that the market is at an initial equilibrium in which the labor supply is S1 and the labor demand is D1. The labor supply curve shifts from S1 to S2 but the wage remains unchanged at its previous equilibrium level. Which of the following is true?
a. There is a shortage of 20 workers.
b. There is a shortage of 30 workers. c. There is a surplus of 30 workers. d. There is a surplus of 20 workers. e. The economy is still in equilibrium.Explanation / Answer
There is surplus of 20 workers.
As the wage remains unchanged, so when labour supply shifts rightward, at the same wage, the labur supply is measured at the point where price line intersect with curve. This point is taken to by 40. So labour surplus is 40-20 = 20