Suppose That a Union Increases Wages by 10% but That

question 2

Multiple Choice

Suppose that a union increases wages by 10% but that the impact of this is exactly offset by the union also increasing labor productivity by 10%.Which of the following will occur if the firm can freely set employment levels?

• A) Employment will fall by 10%.
• B) The cost of output will go up 10%.
• C) Demand for output will go up by more than 10% if the price elasticity of demand is greater than one.
• D) The firm will substitute labor for capital.

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Definitions:

Negative-Sum Game

In game theory, a game in which the gains (+) and losses (−) add up to some amount less than zero; one party’s losses exceed the other party’s gains. A strategic interaction (game) between two or more parties (players) in which the winners’ gains are less than the losers’ losses so that the gains and losses sum to a negative number.

Positive-Sum Game

A situation in game theory in which the sum of gains and losses is greater than zero, indicating that all participants can benefit from cooperation or competition.

Oligopoly

A market structure characterized by a few firms controlling a large portion of the market share, influencing prices and competition.

Competitive Ideal

An economic theory suggesting that markets perform optimally when there is a high level of competition among firms, leading to better products and services for consumers.