A decrease in productivity will cause which of the following to occur in the labour market model?
A) Both the wage- setting and price- setting curves to shift upward.
B) The wage- setting curve to shift downward, and the price- setting curve to shift upward.
C) Both the wage- setting and price- setting curves to shift downward.
D) The wage- setting curve to shift upward, and the price- setting curve to shift downward.
E) The price- setting curve to shift downward, and no shift in the wage- setting curve.

Question

Quizplus · Accepted Answer

A decrease in productivity will cause both the wage-setting and price-setting curves to shift downward. This is because a decrease in productivity means that firms can produce less output with the same amount of inputs, which means that they are willing to pay less for labor and charge more for their products.

A Decrease in Productivity Will Cause Which of the Following