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

Quizplus · Accepted Answer

A wage increase will lead to a decrease in supply as firms will now face higher production costs, and therefore will produce less at every price level. This results in a shift of the supply curve to the left from to _{. The new equilibrium point is where the new supply curve intersects the original demand curve, which is at point E₃. Therefore, the answer is C.}

Exhibit 4-3 Supply and Demand Curves the Market Shown in Exhibit