Answer to Question #93290 in Macroeconomics for Afreen Fatima

Question

Suppose that the public taste changes in such a way that leisure comes to more desirable than commodities How do you expect such a change to affect output, employment and real wages in the classical model?

Answer 1

In the classical theory output and employment are determined by the production function and the demand for labor and the supply of labor in the economy. Suppose that the public taste changes in such a way that leisure comes to more desirable than commodities the number of workers will decrease thus lowering the amount of output. The decrease in the amount of output lowers the amount of real wages.