Author Question: When auto workers go on strike at many of the Big 3 plants around the United States, the supply of ... (Read 104 times)

drink · **on:** Jun 29, 2018

When auto workers go on strike at many of the Big 3 plants around the United States, the supply of American automobiles

A) increases, which is represented by a leftward shift in the supply curve.
B) increases, which is represented by a rightward shift in the supply curve.
C) decreases, which is represented by a rightward shift in the supply curve.
D) decreases, which is represented by a leftward shift in the supply curve.
E) remains the same; only quantity supplied changes.

Question 2

Without any change in the supply of labor, how are the following events likely to change the equilibrium wage and employment level in a firm that manufactures umbrellas?

a) A forecast of higher rainfall this year
b) A decrease in the price of raincoats
c) The introduction of labor-saving technology in the factory

katkat_flores · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

a) A forecast of higher rainfall this year is likely to increase the demand for umbrellas. An increase in the demand for umbrellas will push the price of umbrellas up, and hence, increase the value of marginal product of labor. This will increase the demand for labor, which will cause an increase in the wage rate and the employment level in the firm.

b) Raincoats are substitutes to umbrellas. With a decrease in the price of raincoats, it is likely that the demand for umbrellas will fall. This will cause a decrease in the price and in the value of marginal product of labor employed by the firm. The result will be a fall in the demand for labor, which will cause a decrease in the wage rate and the employment level in the firm.

c) Labor-saving technology is a type of technology that can substitute for existing labor inputs, reducing the marginal product of labor. Hence, the use of such technology will decrease the value of marginal product of labor, which will result in a fall in the demand for labor. Eventually, there will be a decrease in the wage rate and employment level in the firm.