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Profit Maximization in Labor Markets
easy

In labor markets, how does an increase in labor demand typically affect wages and employment levels?

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Learning Path

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Choose the Best Answer

A

Wages decrease and employment decreases

B

Wages increase and employment increases

C

Wages remain the same and employment decreases

D

Wages increase and employment remains the same

Understanding the Answer

Let's break down why this is correct

Answer

When there is an increase in labor demand, it means that employers want to hire more workers. This usually happens because businesses are growing and need more help to produce more goods or services. As demand for workers rises, employers may offer higher wages to attract more people to apply for jobs. For example, if a factory needs more workers to keep up with orders, it might raise pay to get more applicants, leading to both higher wages and more people being employed. Overall, when labor demand increases, we can expect both wages and employment levels to rise.

Detailed Explanation

When more workers are needed, companies pay higher wages to attract them. Other options are incorrect because Some might think that more demand means less pay; It's a common mistake to think that demand doesn't help jobs.

Key Concepts

labor demand
Topic

Profit Maximization in Labor Markets

Difficulty

easy level question

Cognitive Level

understand

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