Question

3. There are concerns about an increase in unemployment due to the slowdown in manufacturing. a) What effect would an increase in the unemployment rate have on the equilibrium wage? (3 marks)

Answer 1

Equilibrium wage means that it is the wage paid on employees where supply and demand are equal.

All persons looking for work at the going wage will be able to find jobs in an equilibrium setting.

an increase in the unemployment rate will result to a decrease on the equilibrium wage.

Answer 2

The equilibrium wage is a wage that is a result of a equilibrium of demand and supply, meaning that a lower or higher wage would change the demand or the supply.

If there is an increase in unemployment, then it means that the supply of workers has increased, while the demand for them is steady; this would drive the equilibrium prize down