Which of the following would cause both wages and employment in the market for autoworkers to increase? a) A very weak stock market, b) An increase in the price of gasoline, c) An increased unemployment rate, d) A growing size of the labor force, e) An increase in the demand for cars

Economics Dec 13, 2020

Which of the following would cause both wages and employment in the market for autoworkers to increase?

a) A very weak stock market,

b) An increase in the price of gasoline,

c) An increased unemployment rate,

d) A growing size of the labor force,

e) An increase in the demand for cars.

Expert Solution

The answer is e).

In general, when there is an increase in demand, both price and quantity will increase. Thus, to increase both wage (price) and employment (quantity) of autoworkers, we need an increase in demand for autoworkers. Demand for autoworkers is derived demand, derived from the consumers' desire for cars. Hence, when there is an increase in demand for cars, demand for autoworkers will increase, leading to higher wage and higher employment of autoworkers.

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