📚 Learning Guide
Labor Market Equilibrium
hard

In a labor market equilibrium, which of the following scenarios would most likely lead to a decrease in the equilibrium wage, assuming all other factors remain constant?

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Choose the Best Answer

A

An increase in the overall unemployment rate

B

A decrease in the demand for labor

C

A rise in minimum wage legislation

D

An increase in labor productivity

Understanding the Answer

Let's break down why this is correct

Answer

In a labor market equilibrium, a decrease in the equilibrium wage can occur when there is an increase in the supply of workers without a corresponding increase in demand for those workers. For example, if a new training program is introduced and many people gain skills in a specific field, the number of qualified workers increases. If employers do not need to hire more workers because their demand stays the same, they can pay lower wages since more people are available for the jobs. This situation leads to more competition among workers for the same positions, which can push wages down. Thus, when the supply of labor rises while demand remains unchanged, equilibrium wages tend to decrease.

Detailed Explanation

When there is less demand for workers, companies don't need to pay as much. Other options are incorrect because Some might think that more unemployment means lower wages; People might believe that raising the minimum wage always lowers other wages.

Key Concepts

equilibrium wage
unemployment rate
economic indicators
Topic

Labor Market Equilibrium

Difficulty

hard level question

Cognitive Level

understand

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