Agricultural products are produced using labor. If the price of labor (i.e., the wage) falls, what is the effect on the equilibrium price and quantity of agricultural products?
(a) The price will fall and the quantity will rise.
(b) The price will rise and the quantity will fall.
(c) The price and quantity will both rise.
(d) The price and quantity will both fall.
Factors of Production:
The term factors of production are the factors or variables that help in the conversion of raw materials into the final product. Thus, these factors help to add value to a product.
Answer and Explanation:
- The correct option is a. The price will fall and the quantity will rise.
In the agricultural products market, labor is one of the factors of production. It is given that there is a decline in the wages paid to laborers in the market. This will cause a decline in the production cost of the agricultural products in the market, and as a result, there is a rise production of agricultural products in the market that causes the price of agricultural products to decline.
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fromChapter 2 / Lesson 6
Learn about the important forces that can cause the demand and supply curve to shift. Discover how this affects equilibrium and the prices you pay for goods and services.