In the classical model, what occurs if a wage of $20/hour results in unemployed workers?
A) The workers will go on strike to demand that more jobs be created.
B) Producers will quickly create more jobs and hire the unemployed workers, so unemployment is short-lived.
C) The wage rate will drop, more workers will be hired, and the unemployment rate falls.
D) The government will step in and order firms to hire more workers.

Question

Quizplus · Accepted Answer

In the classical model, if a wage of $20/hour results in unemployed workers, this implies that the wage is above the equilibrium wage rate. As a result, firms will lower the wage rate in response to a surplus of workers seeking employment, and as the wage rate falls, more workers will be hired, and the unemployment rate will fall. This process continues until the market reaches the equilibrium wage rate where the quantity of labor supplied equals the quantity of labor demanded.

In the Classical Model, What Occurs If a Wage of $20/hour