Assume the market for handkerchiefs is competitive. A new invention leads to lab

Question

Assume the market for handkerchiefs is competitive. A new invention leads to labor-augmenting technological progress in the production of handkerchiefs. This development

a. increases the demand for workers who make handkerchiefs and increases their equilibrium wage.

b. increases the supply of workers who make handkerchiefs and decreases their equilibrium wage.

c. increases the supply of workers who make handkerchiefs and increases their equilibrium wage.

d. decreases the demand for workers who make handkerchiefs and decreases their equilibrium wage.

Explanation / Answer

a. increases the demand for workers who make handkerchiefs and increases their equilibrium wage.

Labor intensive technology increases the demand of workers in the market and as a result, equilibrium wage will increase in the market as their is excess demand keeping the supply same.

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