Question

Over time, there have been technological advances in the production of radios. At the same time, it has become less popular to listen to radio. Taking these two events into account, what would be the likely effect on the wages of workers who manufacture radios?

Answer 1

Technological advances will lower production cost, so radio producers will increase production of radios, shifting its supply curve rightward, increasing price and increasing quantity. At the same time, radio being less popular, demand for radio will fall, shifting its demand curve leftward, increasing price and decreasing quantity. So net effect is a definite rise in price of radios. But quantity of radios will rise, fall or remain the same on basis of whether rightward shift in supply curve is higher than, lower than or equal in magnitude to the leftward shift in demand curve. Since demand for labor is a derived demand, net effect on demand for labor will rise, fall or remain the same on basis of whether rightward shift in supply curve of radio is higher than, lower than or equal in magnitude to the leftward shift in demand curve for radio. Accordingly, wage rate will be higher, lower or remain the same on basis of whether rightward shift in supply curve of radio is higher than, lower than or equal in magnitude to the leftward shift in demand curve for radio.