Question

Suppose that bartenders and waiters have no unions. Now suppose that bartenders form a union. What does this do the labor supply and wages of waiters?

A. Both labor supply and wages increase.
B. Labor supply increases, and wages decrease.
C. Labor supply decreases, and wages increase.
D. Both labor supply and wages decrease.

Answer 1

b. Labor supply increases, and wages decrease

Step-by-step explanation:

It is important to note that labour unions fight for the right of their members by increasing wages and also serve as barrier to entry (restriction on supply of labour).

Since waiters have no union there would be a decrease in their wages as compared to bartenders who formed a union.

The supply of waiters increases because there is an increase in demand for waiters by employers because of a lower wage rate as compared to the wage rate of bartenders.