Thursday 9 April 2009

Why is there a shift in the supply curve when workers' wages rise?

When workers' wages
rise, the supply curve shifts to the left. This means that at a certain price level, the rising
cost of inputs into the goods (including wages) will cause less of that good to be produced.
Inputs are the resources necessary to produce the good, including workers' wages. The curve
shifts to the left because there is less opportunity to make a profit from that good. If the
cost of other inputs, such as the cost of energy, rises, it will have a similar effect on the
supply curve.

For example, if the wages of workers at a fast food chain
increase and the cost of a hamburger stays the same, the cost of making each hamburger will
increase. Therefore, fewer hamburgers will be produced at that price level because each
hamburger will result in less profit, and the supply curve will shift to the
left. 

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