The price for a unit of labor is the wage rate. What happens to the quantity of labor demanded if the wage rate increases?
a. It decreases.
b. It does not change.
c. It increases.
d. The outcome depends upon the supply of the good.

When the wage rate increases, the cost of hiring workers goes up for employers. As a result, many firms might reduce the number of workers they hire, expecting to manage their labor costs better. This creates a typical relationship in economics known as the law of demand, which states that higher prices (or wages, in this case) lead to a decrease in quantity demanded. Hence, the correct answer is a: It decreases.

Additionally, this concept isn’t just theoretical; it has significant implications in the real world. For instance, during a tight labor market or when a minimum wage increase occurs, businesses may face tougher decisions about hiring. Some might invest in automation instead of hiring more staff, showcasing how labor demands can shift based on wages, ultimately affecting unemployment rates and industry dynamics.