Question

Suppose that workers immigrate to Minnesota from Canada. Which of the following correctly describes what would happen in the market for labor in Minnesota?
a. The equilibrium wage would increase, and the quantity of labor would increase. With more workers, the added output from an extra worker is larger.
b. The equilibrium wage would decrease, and the quantity of labor would decrease. With fewer workers, the added output from an extra worker is smaller.
c. The equilibrium wage would decrease, and the quantity of labor would increase. With more workers, the added output from an extra worker is smaller.
d. The equilibrium wage would decrease, and the quantity of labor would increase. With more workers, the added output from an extra worker is larger.

Answer 1

Answer:

The correct answer is option c.

Explanation:

As more workers migrate to Minnesota from Canada, the population of workers in Minnesota will increase. This will lead to a rightward shift in the labor supply curve.  

This consequently leads to a decline in the equilibrium wages as the quantity of labor supplied will be higher than the quantity of labor demanded. So wages will fall and the quantity of labor will increase.

With an increase in the quantity of workers, the added output from an extra worker is smaller as the increased quantity of workers are using the fixed quantity of capital.