Refer to the figure below: Let demand remain constant at D; an increase in wages causes firms to be willing and able to sell 150 fewer units at each price than they were before the wage increase.

Question

Refer to the figure below:  Let demand remain constant at D; an increase in wages causes firms to be willing and able to sell 150 fewer units at each price than they were before the wage increase.

Quizplus · Accepted Answer

When firms are able and willing to sell 150 fewer units at each price after an increase in wages, the supply curve shifts leftward from S1 to S2. The new equilibrium occurs at the intersection of demand curve D and supply curve S2, resulting in a higher price and a lower quantity than before. From the figure, we can see that the new equilibrium price is around $7 and the new equilibrium quantity is around 250. Therefore, the best choice is C.

Refer to the Figure Below: Let Demand Remain Constant