What would be the predicted impact on the labor market of a decrease in non-wage income, as well as an increase in the price of machines?a. An increase in equilibrium wage, and an indeterminate change in equilibrium quantity of labor.b. A decrease in equilibrium wage, and an indeterminate change in equilibrium quantity of labor.C. An indeterminate change in equilibrium wage, and an increase in equilibrium quantity of labor.O d. An indeterminate change in equilibrium wage, and a decrease in equilibrium quantity of labor.

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Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: The Markets For The Factor Of Production

Section: Chapter Questions

Problem 1PA

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What would be the predicted impact on the labor market of a decrease in non-wage income, as well as an increase in the price of machines?
a. An increase in equilibrium wage, and an indeterminate change in equilibrium quantity of labor.
b. A decrease in equilibrium wage, and an indeterminate change in equilibrium quantity of labor.
C. An indeterminate change in equilibrium wage, and an increase in equilibrium quantity of labor.
O d. An indeterminate change in equilibrium wage, and a decrease in equilibrium quantity of labor.

Expert Solution

Step 1

A decrease in non - wage income would mean that workers would want to engage more in labor work (i.e. earn wage).

This would lead to increase in supply of labor.

At the same time, with the increase in price of machines, The producers would want to shift to a more labor intensive technique of production in order to keep the cost of production low.

This would lead to increase in demand for labor.

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