In the coordination failure model,a rightward shift in the labour supply curve
A) increases the real wage and increases employment.
B) increases the real wage and decreases employment.
C) decreases the real wage and increases employment.
D) decreases the real wage and decreases employment.
E) increases the real wage and increases output.

Question

Quizplus · Accepted Answer

In the coordination failure model, a rightward shift in the labor supply curve implies an increase in the number of workers available in the labor market, leading to an excess supply of labor. This excess supply of labor puts downward pressure on wages, causing a decrease in the real wage. As a result, firms' profits increase, but their labor demand decreases due to the higher cost of production. This decrease in labor demand leads to a decrease in employment. Therefore, the correct answer is D, a decrease in the real wage and a decrease in employment.

In the Coordination Failure Model,a Rightward Shift in the Labour