A sudden increase in the demand for air conditioners increased the eamnings of t

Question

A sudden increase in the demand for air conditioners increased the eamnings of the workers employed in air conditioner-manufacturing firms and attracted workers from other sectors. Which of the following will be true in the market for workers employed in air conditioner-manufacturing firms? 4 ?There will be a rightward shift of the labor supply curve, leading to a decrease in the equilibrium wage and O There will be a rightward shift of the labor supply curve, leading to an increase in the equilbrium wage and O There will be a leftward shift of the labor supply curve, leading to a decrease in the equilibrium wage and O There vwill be a leftward shift of the labor supply curve, leading to an increase in the equilibrium wage and a an increase in employment. employment employment decrease in employment

Explanation / Answer

ANSWER:

The correct answer is option c because of the backward bending effect of the labor supply curve as higher wages will lead to reduction in the labor supply as after that workers will substitute working time for leisure time and after that more workers will lead towards wages and employment going down.

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