Question

Suppose the demand for automobiles increases. Which of the following explains what happens in the labor market for automobile workers?

A. The price of automobiles increases and the supply of automobile workers increases, resulting in lower wages and employment
B. The price of automobiles decreases and demand for automobile workers decreases, resulting in higher wages and employment
C. The price of automobiles increases and the supply of automobile workers decreases, resulting in higher wages and employment
D. The price of automobiles increases and the demand of automobile workers increases, resulting in higher wages and employment
E. There is no impact on the labor market, since the change in demand is in the product market

Answer 1

When the demand for automobiles rises, it triggers an increase in the demand for automobile workers, leading to higher wages and employment in the industry. The correct answer to the student's question is option D.

Step-by-step explanation:

When the demand for automobiles increases, it typically leads to higher prices for cars due to the increased demand for the product. This, in turn, can result in a higher demand for automobile workers because producers will need to increase production to meet the higher demand for automobiles. According to the basic principles of labor market economics, an increase in the demand for labor generally leads to an increase in both wages and employment levels, assuming the supply of labor does not change significantly in the short term.

In line with these principles, the correct answer to what happens in the labor market for automobile workers is: D. The price of automobiles increases and the demand of automobile workers increases, resulting in higher wages and employment. This option aligns with the standard economic model where an increase in product demand not only increases the product's price but also boosts the demand for labor needed to produce that product, hence raising both wages and employment in the affected industry.