When the real wage is below the equilibrium price in the labor market ________.
A)we have an excess supply of labor and the real wage should fall
B)we have an excess demand of labor and the real wage should fall
C)we have an excess demand of labor and the real wage should increase
D)we have an excess supply of labor and the real wage should increase
E)none of the above

Question

Quizplus · Accepted Answer

When the real wage is below the equilibrium price in the labor market, there is an excess demand for labor because employers are willing to hire more workers at this lower wage, and workers are less willing to supply their labor at this lower wage. This situation puts upward pressure on wages, leading to an increase in the real wage towards equilibrium.

When the Real Wage Is Below the Equilibrium Price in the Labor