Exhibit 4-3 Supply and demand curves
-The market shown in Exhibit 4-3 is initially in equilibrium at point E₄. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Question

Exhibit 4-3 Supply and demand curves

-The market shown in Exhibit 4-3 is initially in equilibrium at point E₄. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Quizplus · Accepted Answer

With a wage increase, production costs increase for the firms in the market. This causes a leftward shift of the supply curve. As a result, the new equilibrium point will have a higher price and a lower quantity. The only option that reflects this change is E₃.

Exhibit 4-3 Supply and Demand Curves