Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labour union negotiates an industry-wide wage for various kinds of labour (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $12 to $16 per hour. The following graph shows the labour demand of an individual firm. On the following graph, show what happens at the firm level as a result of the union negotiations.
Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labour union negotiates an industry-wide wage for various kinds of labour (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $12 to $16 per hour. The following graph shows the labour demand of an individual firm. On the following graph, show what happens at the firm level as a result of the union negotiations.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through
collective bargaining, a labour union negotiates an industry-wide wage for various kinds of labour (electricians, plumbers, and so on). In particular, it
succeeds in negotiating a wage increase for carpenters from $12 to $16 per hour.
The following graph shows the labour demand of an individual firm.
On the following graph, show what happens at the firm level as a result of the union negotiations.
WAGE RATE (Dollars per hour)
24
20
0
0
10
Supply
Demand
20
40
30
QUANTITY OF LABOUR (workers)
50
60
Now consider the effects of the wage change on the entire industry.
Demand
Supply
(?
Transcribed Image Text:Use the graph input tool to help you answer the following questions. You will not be scored on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
WAGE RATE (Dollars per hour)
0
Supply
30
Demand
50
10 20
40
QUANTITY OF LABOUR (Thousands of workers)
60
Graph Input Tool
Wage Rate
(Dollars per hour)
Quantity
Demanded
(Thousands of
workers)
Surplus
(Thousands of
workers)
Demand Shifter
Pro-Union
Advertising
(Millions of dollars)
The union's wage increase from $12 to $16 per hour causes a surplus of
workers.)
12
30
0
0
Quantity Supplied
(Thousands of
workers)
Shortage
(Thousands of
workers)
?
30
0
workers. (Note: Be sure to enter your answer in thousands of
Suppose that the union, in order to mitigate the unemployment caused by the wage increase, bolsters demand by rolling out a "Buy Union" advertising
campaign. If the union spends $4 million on the campaign, the surplus of labour will be
workers. (Note: Be sure to enter your answer
in thousands of workers.)
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