If both labor demand and labor supply fall,what will happen to the real wage,employment,and output?

Question

Quizplus · Accepted Answer

When both labor demand and labor supply fall, the real wage may increase due to the decrease in the supply of labor. However, the decrease in labor demand may lead to a decrease in both employment and real output. The effect on the real wage depends on the exact magnitudes of these shifts in labor demand and supply. Therefore, D is the best choice. Option A is incorrect as it assumes that both real wage and real output can increase even if labor demand decreases. Option B is partly correct, but it overlooks the potential decrease in employment. Option C is incorrect as it assumes that all three variables will decrease. Option E is incorrect as it assumes that all three variables will increase.

If Both Labor Demand and Labor Supply Fall,what Will Happen