Figure 19-2

-Refer to Figure 19-2.This figure depicts labor demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20,then there will be an excess
A) supply of 3,000 workers.
B) demand of 7,000 workers.
C) supply of 4,000 workers.
D) supply of 7,000 workers.

Question

Figure 19-2
 
-Refer to Figure 19-2.This figure depicts labor demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20,then there will be an excess
A) supply of 3,000 workers. 
B) demand of 7,000 workers. 
C) supply of 4,000 workers. 
D) supply of 7,000 workers.

Quizplus · Accepted Answer

At the original equilibrium point A, the wage rate is $16 and the quantity of labor demanded and supplied is 23,000.

When the union establishes a union shop and negotiates a wage rate of $20 per hour, this will lead to a higher wage rate and a decrease in labor demand. The new labor demand curve will shift leftward from D1 to D2. At the new equilibrium point B, the wage rate is $20 and the quantity of labor demanded is 16,000.

However, at the higher wage rate of $20, more workers are willing to supply their labor. The new labor supply curve will shift rightward from S1 to S2. The new equilibrium quantity is 9,000.

Therefore, there will be an excess supply of workers, which is the difference between the quantity supplied (9,000) and the quantity demanded (16,000), or 7,000 workers.

The answer is D, supply of 7,000 workers.

Figure 19-2 -Refer to Figure 19-2.This Figure Depicts Labor Demand and Supply