If the real wage rate is such so that the quantity of labor supplied equals the quantity of labor demanded,

Question

Quizplus · Accepted Answer

When the quantity of labor supplied equals the quantity of labor demanded, it means that the labor market is in equilibrium, known as full-employment equilibrium. At this equilibrium, all individuals who are willing to work are matched with available job opportunities. This leads to the utilization of all available resources, which means that real GDP is at potential GDP. Therefore, both A and B are the correct answers. Additionally, at this equilibrium, the opportunity cost effect of not working equals the income effect, implying that individuals make an optimal labor-leisure choice. However, this fact is not the only factor that leads to the full-employment equilibrium.

If the Real Wage Rate Is Such So That the Quantity