Question

Increase in u will tend to cause which of the following

A. downward shift in PS
B. upward shift in PS
C. downward shift in WS
D. upward shift in WS

Answer 1

An increase in "u" will tend to cause an upward shift in WS (wage rate) because because when there is a higher level of unemployment, workers have less bargaining power and are willing to accept lower wages to secure employment

Step-by-step explanation:

The variable "u" typically represents the level of unemployment in an economic model. An increase in "u" indicates a higher level of unemployment.

When there is a higher level of unemployment, there is typically a surplus of labor in the market.

This surplus of labor puts downward pressure on wages, as there are more workers available for a limited number of job opportunities.

As a result, employers have more bargaining power and can offer lower wages.

However, an increase in "u" does not directly cause a downward shift in the wage rate. It is rather the surplus of labor resulting from higher unemployment that leads to a downward shift in the wage rate.

On the other hand, an increase in "u" can cause an upward shift in the wage rate (WS).

This is because when there is a higher level of unemployment, workers have less bargaining power and are willing to accept lower wages to secure employment. As the level of unemployment decreases, workers gain more bargaining power, and employers need to offer higher wages to attract and retain workers.

Therefore, the correct answer is D) upward shift in WS (wage rate) as an increase in "u" leads to lower bargaining power for workers and can result in higher wages.

Answer 2

Increase in u will tend to cause

D. upward shift in WS

Step-by-step explanation:

When there is an increase in the variable "u," it usually refers to an exogenous factor that affects the supply of labor. An increase in labor supply leads to an upward shift in the labor supply curve (WS). This results in an increase in the quantity of labor supplied at any given wage rate.

Mathematically, an increase in u causes an increase in the labor supply function: WS^' = f(u, wage rate). As u increases, the labor supply curve shifts rightward, indicating that at each wage rate, a greater quantity of labor is supplied. This shift implies that workers are willing to work more at any given wage, which corresponds to an upward shift in the WS curve.

This shift impacts the labor market equilibrium, leading to an increase in the equilibrium quantity of labor hired and a decrease in the equilibrium wage rate. Therefore, an increase in u causes an upward shift in WS.