Wages rise when the demand for workers increases because

• A. Labor supply increases wages
• B. Wages rise when the demand for workers increases
• C. Labor demand affects wages only when unemployment is high
• D. Wages rise regardless of demand

Answer: (B)

Wages are the price of labor set by the interaction of how much workers want to work (supply) and how much employers want to hire (demand). When the demand for workers increases, firms need more workers and are willing to offer higher wages to attract them. This rightward shift in the labor-demand curve raises the equilibrium wage, assuming the supply of labor doesn’t rise by the same amount. If only the supply rose, wages would tend to fall, not rise. So the rise in wages comes from the higher demand for labor, which bids up the price of hiring workers.