Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the labor market were always in equilibrium, this would lead to:
A) a lower real wage and a rise in unemployment.
B) a lower real wage and no change in unemployment.
C) a lower real wage and less unemployment.
D) no change in real wage or in unemployment.

Question

Quizplus · Accepted Answer

A downward and leftward shift in the labor demand curve indicates that employers are willing to hire fewer workers at any given wage, leading to a decrease in the equilibrium wage. However, if the labor market is always in equilibrium, the quantity of labor supplied will adjust to the new demand, resulting in a new equilibrium with a lower real wage but no change in unemployment, as the quantity of labor demanded will equal the quantity of labor supplied at the new, lower wage.

Assume That a Country Experiences a Reduction in Productivity That