A union leader told its membership that a wage increase,while resulting in some layoffs,would nonetheless increase the total incomes of its membership.The firm replied that a wage increase would reduce the total incomes of its membership.We can conclude that:
A)both the firm and the union believe that labor demand is inelastic,but for different reasons
B)both the firm and the union believe that labor demand is elastic,but for different reasons
C)the union believes that labor demand is elastic while the firm believes it to be inelastic
D)the union believes that labor demand is inelastic while the firm believes it to be elastic

Question

Quizplus · Accepted Answer

The union leader's statement suggests that they believe that a wage increase will lead to job losses, indicating that they think labor demand is inelastic. However, they also believe that the resulting wage increase will more than make up for the job losses in terms of total income for its members, indicating they think labor supply is elastic. The firm's response suggests they think labor demand is elastic - if they believed it to be inelastic, they would expect a wage increase to lead to fewer layoffs but total income staying the same or decreasing. Therefore, the union believes labor demand is inelastic while the firm believes it to be elastic.

A Union Leader Told Its Membership That a Wage Increase,while