7. Consider two industries, A and B. Industry A sells an expensive product for which there are many close substitutes. Industry B sells a unique, addictive, relatively inexpensive product. Suppose both industries find that they face identical labor supply curves and that there is an equal increase in non-labor income for workers in both industries. We predict that:

1. more workers are laid off in industry A than in industry B and wages rise by more in industry A than in industry B.
2. more workers are laid off in industry A than in industry B but wages rise by less in industry A than in industry B.
3. fewer workers are laid off in industry A than in industry B and wages rise by the same amount in both industries.
4. fewer workers are hired in industry A than in industry B and wages rise by more in industry A than in industry B.
5. fewer workers are hired in industry A than in industry B and wages rise by less in industry A than in industry B.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved