The first 3 columns of the following table show data for a representative firm in an industry.The last 3 columns show the market demand and supply for the type of labour employed by this firm.

-What happens if the supply of labour increases more than does the demand for labour?
A)Wage rates will increase.
B)Wages rates will decrease.
C)The effect on wage rates is indeterminate.
D)The quantity of hours worked will decline.

Question

The first 3 columns of the following table show data for a representative firm in an industry.The last 3 columns show the market demand and supply for the type of labour employed by this firm.
 
-What happens if the supply of labour increases more than does the demand for labour?
A)Wage rates will increase. 
B)Wages rates will decrease. 
C)The effect on wage rates is indeterminate. 
D)The quantity of hours worked will decline.

Quizplus · Accepted Answer

If the supply of labor increases more than the demand, then there will be an excess supply of labor, leading to a decrease in wage rates as firms are not willing to pay more for the same amount of labor. This is known as a labor surplus, and it leads to a decrease in the quantity of hours worked as workers may leave the industry in search of better-paying jobs.

The First 3 Columns of the Following Table Show Data