A favourable supply shock,such as a fall in the price of oil,would
A)cause firms to demand less labour at any given real wage.
B)cause the labour demand curve to shift to the left.
C)increase the marginal product of labour.
D)decrease the real wage.

Question

Quizplus · Accepted Answer

A favourable supply shock, such as a fall in the price of oil, leads to a decrease in the cost of production, resulting in an increase in the marginal product of labour. As a result, firms demand more labour at any given real wage, and the labour demand curve shifts to the right. This ultimately leads to an increase in both employment and real wage.

A Favourable Supply Shock,such as a Fall in the Price