Answer to Question #286669 in Macroeconomics for Vicky

Question

Suppose that the public's taste changes in such a way that leisure comes to be more desirable than commodities. How would you expect such a change to affect output, employment, and the real wage in the classical model ?

Answer 1

Output and employment in the classical theory are determined by the production level, demand for labour and supply in the economy. If taste for commodity changes in the public such that leisure is more demanded, the number of employees demanded reduces and this translates to a reduced production. This decrease leads to a reduction of the real wages.