The price of a wideget increases by 90%. What effect would we expect this to have on the equilibrium wage rate of workers who make widgets?
Would this increase, decrease, or keep the wage rate the same?
decrease
To determine the effect of a widget price increase on the equilibrium wage rate of workers, we need to consider the relationship between supply and demand in the labor market.
An increase in the price of widgets suggests that the demand for widgets has increased. This could be due to various factors such as increased consumer demand or changes in market conditions. To meet the higher demand, firms producing widgets may need to expand their production output by hiring more workers or increasing the hours of existing workers.
In this scenario, an increase in demand for labor is likely to occur, leading to an upward pressure on wages. As firms seek to hire additional workers, they may offer higher wages to attract and retain workers in a competitive labor market. Therefore, we would expect the equilibrium wage rate for workers who make widgets to increase.
It is important to note that this is a general analysis, and the actual impact on wages may depend on other factors such as labor market conditions, elasticity of labor supply, and the overall industry dynamics.