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The costs of labor go up for the sellers of widgets and incomes of buyers go...

  1. The costs of labor go up for the sellers of widgets and incomes of buyers go up for buyers of widgets. (Widgets are inferior goods.) What happens to market supply and demand? What happens to the equilibrium price and quantity?
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Answer #1

Answer : If labor cost increase then the production of widgets will decrease. As a result, market supply will decrease which will shift the market supply curve to leftward.

For inferior goods if consumers' income increase then demand decrease. Here widget is an inferior good and the income of consumers has increased. As a result, the market demand for widgets will decrease which will shift the market demand curve to leftward.

Now due to decrease in both supply and demand at new equilibrium the quantity will decrease but the price will be uncertain. Because changes in price totally depends on how much market demand and supply changes. So, in this situation price may increase, decrease or may stay same.

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