How Do Decreased Wages Affect the Shovel Industry?

What happens when wages in the shovel industry decrease? When wages in the shovel industry decrease, the cost of production of shovels also decreases. This leads to an increase in the supply of shovels and the equilibrium quantity of shovels transacted.

Impact of Decreased Wages on the Shovel Industry

Decreased wages in the shovel industry have a significant effect on the market for shovels. As wages decrease, the production cost of shovels decreases as well. This results in a lower cost for firms to produce shovels, leading to an increase in the supply of shovels in the market.

Due to the lower production costs, firms are incentivized to produce more shovels at the same price or to lower the price of shovels while maintaining the same level of production. This increase in supply is reflected in a rightward shift of the supply curve from S1 to S2.

At the original price P1, the increased supply of shovels results in an excess supply (Q2-Q1). In order to clear this excess supply, sellers will adjust the price downwards until they reach a new equilibrium point E2. At this new equilibrium, the price of shovels will be lower, but the quantity of shovels transacted will be higher than before.

This demonstrates that a decrease in wages in the shovel industry causes the equilibrium quantity of shovels transacted to increase. The market adjusts to the lower production costs by increasing the supply of shovels, leading to a higher quantity of shovels being exchanged in the market.

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