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

When there is large-scale involuntary unemployment, it means that there are more people willing to work at the existing wage rate than there are jobs available. In such a case, the labour supply curve becomes perfectly elastic. This is because, at the existing wage rate, people are willing to supply any amount of labour, but there is not enough demand for it. A horizontal labour supply curve indicates that changes in the wage rate do not affect the quantity of labour supplied. This is the case in an economy with involuntary unemployment, where the wage rate does not change to clear the labour market. 
- (A) Horizontal: Correct. With involuntary unemployment, the labour supply curve becomes horizontal, indicating that people are willing to work at the existing wage rate but there are not enough jobs available.
- (B) Vertical: This would indicate that the quantity of labour supplied is fixed regardless of the wage rate, which is not the case in involuntary unemployment.
- (C) Positively sloped: A positively sloped labour supply curve would suggest that as wages increase, the quantity of labour supplied also increases, but this does not apply in the case of involuntary unemployment.
- (D) Negatively sloped: A negatively sloped labour supply curve implies that as wages increase, the quantity of labour supplied decreases, which is not the case in involuntary unemployment.
The correct answer is (A), as the labour supply curve becomes horizontal in the case of large-scale involuntary unemployment. 

Final Answer: (A) Horizontal.