When the supply of labor increases, according to the specific-factors model, which of the following is likely to happen?
A) The number of workers employed will decrease.
B) The wages for workers will decline.
C) The marginal product of labor increases in all industries.
D) The overall wage in the economy increases in the short run.

Question

Quizplus · Accepted Answer

According to the specific-factors model, if the supply of labor increases, the wages for workers will decline as the increase in labor supply will lower the equilibrium wage rate. The model also suggests that the marginal product of labor increases only in the industry where the specific factor (i.e. capital, land) is used intensively, while it decreases in the industry where the specific factor is used less intensively. The model does not suggest that the number of workers employed will decrease or that the overall wage in the economy will increase in the short run.

When the Supply of Labor Increases, According to the Specific-Factors