If a labor union successfully restricts the supply of labor

If a labor union successfully restricts the supply of labor firms, and if the union is not able to influence the demand for labor, then the wage rate ______ and employment __________

A. falls; might increase, decrease, or remain constant

B. rises; remains constant

C. rises ; decreases

D. falls ; increases

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Solution

The correct answer to this question is \"C\". If the supply of the labor is limited the wages will go up because the existing labor is a scarce resource right now and the increased wages will force the firms to cut some employment and maintain their competitiveness in the market.

Let take a look at the other option to understand things better.

As per the first option, the wage rate might fall which is false because a limited supply will force the firms to increase the wages and make leisure costlier and attract more labor and employment will fall, as the firms are not getting any new labor the existing one might ask for a raise which will force the firm to cut some employment and adjust the increased wages, same thing goes with option D.

Option B says the wages rise but employment remains constant which is wrong, in case of a wage rise the firms will have to increase the price of their product cut some employment. Whenever supply is decrease in the supply of any variable and the demand remains the same the price of that variable rises and quantity falls.