Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market?
A) Wage and level of employment increase.
B) Wage increases and level of employment declines.
C) Wage decreases and level of employment increases.
D) Wage and level of employment decline.

Question

Quizplus · Accepted Answer

When the labor demand curve shifts rightward in a monopsony, it means that the employer needs to hire more workers at each wage level. As a result, the equilibrium wage and level of employment both increase. This is because the employer has market power in setting wages and can hire more workers at a lower wage if the labor supply curve is relatively elastic, but when the labor demand curve shifts rightward, the employer has to compete more for labor and increase wages to attract workers.

Suppose the Downward Sloping Labor Demand Curve Shifts Rightward in a Labor