   Chapter 14, Problem 3WNG

Chapter
Section
Textbook Problem

Diagrammatically explain how changes in supply conditions and wage rates in the unionized sector can cause changes in supply conditions and wage rates in the nonunionized sector.

To determine

Diagrammatically illustrate the effect of labor unions on nonunion wage rates.

Explanation

Figure-1 shows the changes in supply conditions and wage rates in the unionized sector as follows:

In Figure-1, the vertical axis measures the wage rates and the horizontal axis measures the quantity of labor. The initial wage rate is $15. The collective bargaining of the unions increases the wage rate from$15 to \$18. As the wages increase, the supply of labor will be higher than the demand for labor. As a result, the labor supply will decrease from SU to S'U.

Figure-2 shows the changes in supply conditions and wage rates in the nonunionized sector as follows:

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