Question : Which of the following occurs when labour productivity rises?
Option 1: The equilibrium nominal wage falls.
Option 2: The equilibrium quantity of labour falls.
Option 3: Competitive firms will be induced to use more capital.
Option 4: The labour demand curve shifts to the right.
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Correct Answer: The labour demand curve shifts to the right.
Solution : The correct answer is The labour-demand curve shifts to the right.
When labour productivity grows, the labour demand curve swings to the right. This is because firms are more ready to recruit additional workers when they are more productive. The movement in the labour-demand curve to the right indicates that employers are eager to recruit more workers at any given pay rate. It leads to a rise in employment and pay.
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