A rise in wealth reduces labour supply.What happens to current employment and the real wage rate?
A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question

Quizplus · Accepted Answer

A rise in wealth reduces labour supply, meaning that fewer people would be willing to work. This would lead to a decrease in employment. However, since there are fewer workers available, the demand for labour would increase, leading to an increase in the real wage rate. Therefore, employment would decrease while the real wage rate would increase.

A Rise in Wealth Reduces Labour Supply