If a union is able to bargain for a wage that is higher than the equilibrium:
A) all workers will earn a wage equal to their value of marginal product.
B) some excess supply of labour or unemployment will generally result.
C) compensating differentials will be erased.
D) diminishing returns will not exist.

Question

Quizplus · Accepted Answer

If a union is able to negotiate a wage higher than the equilibrium, the wage rate will be higher than the level that balances the supply and demand for labor. This will lead to excess supply of labor or unemployment as there will be more workers willing to work at the higher wage than the number of jobs available. This is because the higher wage rate reduces the quantity of labor demanded, while increasing the quantity supplied.

If a Union Is Able to Bargain for a Wage