The demand curve for labor indicates that:
A)as the real wage rate increases,employers will hire more workers.
B)as the nominal wage rate increases,employers will hire more workers.
C)as the nominal wage rate decreases,the real wage rate increases.
D)as the real wage rate increases,employers will hire fewer workers.
E)the real wage rate does not affect firms' hiring decisions.

Question

Quizplus · Accepted Answer

The demand curve for labor has a negative slope, indicating that as the real wage rate increases, employers will hire fewer workers. This is because higher wages increase the cost of labor for firms, leading to reduced profit margins, which may cause employers to reduce their demand for labor. As a result, the demand curve for labor slopes downward from left to right. Option A is incorrect because it erroneously suggests that higher real wages will lead to increased employment. Option B is incorrect because the nominal wage rate (which is the wage rate adjusted for inflation) does not directly affect employers' decisions to hire workers. Option C is irrelevant to the demand curve for labor, which only examines the relationship between the real wage rate and the quantity of labor demanded. Option E is incorrect because the demand for labor is affected by the real wage rate.

The Demand Curve for Labor Indicates That