The demand for a product produced by a union becomes more elastic. After this change, how does an increase in the wage rate paid its members affect their employment?
A) It decreases employment by less than it would have before.
B) It increases employment.
C) It does not decrease employment at all.
D) It decreases employment by more than it would have before.

Question

Quizplus · Accepted Answer

When the demand for a product becomes more elastic, consumers are more sensitive to price changes. If the wage rate paid to union members increases, the cost of production increases, which can lead to higher prices for the product. With more elastic demand, consumers are more likely to reduce their quantity demanded significantly in response to the price increase, leading to a larger decrease in employment than if the demand were less elastic.

The Demand for a Product Produced by a Union Becomes