Question

The labor supply curve:

Multiple Choice

• shows the relationship between the total quantity of labor supplied by all firmsin the economy and the wage rate.

• shows that, all things being equal, more workers will want to work when wages are higher and less will want to work when wages are lower.

• has a negative slope.

• All of these are true.

Between July of 2013 and August of 2013, the official unemployment rate fell from 7.4% to 7.3%, while the participation rate fell from 63.4% to 63.2%. From this information we can conclude that the unemployment rate fell because:

Multiple Choice

• Employed workers left the labor force.

• Workers from outside the labor force become employed.

• Unemployed workers became employed.

• Unemployed workers left the labor force.

Answer 1

Answer

1)

Labor supply curve shows amount of workers that are willing to wark at different wages when all other things remaining constant. More that wage more workers will want to worker and thus amount of labor supplied increases and hence Labor supply curve is upward sloping.

Hence, the correct answer is (b) shows that, all things being equal, more workers will want to work when wages are higher and less will want to work when wages are lower.

2)

Unemployment rate = number of unemployed / labor force participation

It is given that unemployment rate decreases and labor force participation also decreases. If the labor force which left the market were unememployed then number of unemployed will also decrease and then unemployment rate will increase.(Note that (a/b) > (a-c)/(b-c)) for c > 0)

If the labor force which left the market were employed then number of unemployed will remain same and unemployment rate will increase.But here unemployment rate decreased implied that unemployed worker has left the market.

Hence, the correct answer is (d) Unemployed workers left the labor force.