Question

When a union raises the wage above the equilibrium level, it a. raises both the quantity of labor supplied and the quantity of labor demanded. b. reduces both the quantity of labor supplied and the quantity of labor demanded. c. reduces the quantity of labor supplied and raises the quantity of labor demanded. d. raises the quantity of labor supplied and reduces the quantity of labor demande

Answer 1

Answer: Option (d) is correct.

Explanation:

Option (d) - Raises the quantity of labor supplied and reduces the quantity of labor demanded.

When a union raises the wage above the equilibrium level, this will lead to increase the quantity of labor supplied because at this wage more labors wants to work and take the advantage of the higher wages.

At the same time, quantity demand for labor decreases in the economy. This is due to the higher wages which increases the firm's cost of production. So, at this wage firm's demand for labor decreases.