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Labor Supply and Demand Graphing
hard

In a labor market graph, what happens to the equilibrium wage if the labor force participation rate increases, assuming demand remains constant?

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Choose the Best Answer

A

It increases

B

It decreases

C

It remains the same

D

It becomes unpredictable

Understanding the Answer

Let's break down why this is correct

Answer

When the labor force participation rate increases, more people are looking for jobs. This means that the supply of labor goes up, as there are more workers available to fill positions. If the demand for labor stays the same, having more people competing for jobs can lead to a decrease in the equilibrium wage, which is the wage where the number of workers wanted by employers matches the number of workers available. For example, if a company needs ten workers but now has twenty people applying, the company may offer lower wages because they have more choices. So, an increase in the labor supply, with constant demand, typically results in lower wages for workers.

Detailed Explanation

When more people want to work, the supply of labor goes up. Other options are incorrect because Some might think that more workers means lower wages; It's a common mistake to think that more workers won't change wages.

Key Concepts

Equilibrium wage
Labor market equilibrium
Labor force participation rate.
Topic

Labor Supply and Demand Graphing

Difficulty

hard level question

Cognitive Level

understand

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