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

Since demand remains constant at D, the change in quantity supplied is solely due to the increase in wages. We can see that the supply curve shifts to the left from S1 to S2, indicating that at each price level firms are willing and able to sell 150 fewer units.

At the initial equilibrium point, the price is P = $8 and the quantity is Q = 400. When the supply curve shifts to the left, the new equilibrium point will occur at the intersection of the demand curve and the new supply curve S2. The new equilibrium price will be higher (since there is a decrease in supply) and the new equilibrium quantity will be lower (since firms are willing and able to sell fewer units).

From the graph, we can see that the intersection of the demand curve and the new supply curve occurs at P = $7 and Q = 250. Therefore, choice C is the correct answer.

Refer to the Figure Below: Let Demand Remain Constant