An increase in the price of labor used to produce good A will lead to
A) an increase in the market clearing price of good A.
B) an increase in the supply of good A.
C) a decrease in the demand for good A.
D) an increase in the demand for good A.

Question

Quizplus · Accepted Answer

An increase in the price of labor, which is a cost of production, typically leads to a decrease in supply because it becomes more expensive to produce the good. This decrease in supply, with demand remaining constant, usually results in an increase in the market clearing price of the good. Choices B, C, and D do not directly result from an increase in the price of labor.

An Increase in the Price of Labor Used to Produce