Figure: Equilibrium in the Labor Market
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor Market, a decrease in the price of the good produced, when everything else stays the same, will lead to a(n)
________ in the equilibrium quantity of labor and a(n) in the equilibrium price of labor.

Question

Quizplus · Accepted Answer

When the price of the good produced decreases, it reduces the demand for labor since the firms will reduce their production and, hence, need fewer workers. This leads to a decrease in the equilibrium quantity of labor. Additionally, the decrease in demand for labor puts downward pressure on wages, which leads to a decrease in the equilibrium price of labor. Therefore, the correct answer is D (decrease in equilibrium quantity of labor and decrease in equilibrium price of labor).