Question

What would be the slope of the labour supply curve if there is large scale involuntary unemployment in the economy, if wage rate is measured along the vertical axis and labour supply is measured along the horizontal axis?

• A. Horizontal
• B. Vertical
• C. Positively sloped
• D. Negatively sloped

Hint:

In cases of involuntary unemployment, the labour supply curve is horizontal, meaning that changes in wages do not affect the number of people willing to work.

Answer 1

The Correct Option is A

Topic: The Labour Market and Unemployment
Understanding the Question: What is the shape of the labor supply curve when there is a massive surplus of workers willing to work at the current wage?
Key Formulas and Approach: Involuntary unemployment implies that at the going wage ($W$), supply of labor ($Ls$) exceeds demand ($Ld$). Workers are in the "surplus" zone.
Detailed Solution:
Step 1: Define the scenario. Large-scale involuntary unemployment means there are many workers ready to work if a job opens at the existing wage.
Step 2: Determine Elasticity. Because companies can hire as many people as they want without raising the wage, the labor supply is perfectly elastic.
Step 3: Visualize the curve. A perfectly elastic curve on a graph where the wage is on the vertical axis is a Horizontal line.
Conclusion: The slope is horizontal (A).