Assume competitive labor markets and normal shapes for the demand for and supply of labor. Given the specified change in market conditions in each question (and no other change for each question), predict the directional change to the equilibrium wage rate and quantity of labor hired. Wage rate Quantity of labor A. The productivity of labor increases. _________ _________ B. The opportunity cost of labor decreases. _________ _________ C. The price of the product produced increases. _________ _________ D. The working environment improves at a cost to employers that is less than the value of the improved environment to workers _________ _________
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If the productivity of labor increases, it means that workers can produce more output in the same amount of time. This will increase the demand for labor, as firms will want to hire more workers to take advantage of the increased productivity. As a result, the Show more…
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