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:

Company Check

A check written from a company's account, representing an official payment by the company to another party.

Deposits in Transit

Funds that have been deposited by a company but have not yet been recorded by the bank.

Recorded

The process of documenting financial transactions in the accounting records of an organization.

Bank

A financial institution licensed to receive deposits, offer loans, and provide various other financial services, such as currency exchange and wealth management.