Question

explain why an increase in wages is likely to increase demand but may reduce supply

Answer 1

Because when some thing marketing price increase that makes people not buy that product .

this makes increase in wages is likely to increase demand but may reduce supply

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Answer 2

An increase in wages or income is likely to increase the consumer demand for goods and services mainly due to income effect.

Increase in wages or income will perhaps reduce the supply in the market as it also increases the production or business cost or expenses for the businesses or suppliers.

Explanation:

In Microeconomics,an increase in wages or income represent higher income level of the consumers and households.This will essentially lead to a higher real purchasing power or capacity,considering the market price of goods and services as unchanged or constant,for the consumers and households which will basically generate higher demand for goods and services by the consumers/buyers and the households.

On the other hand,an increase in wage or income indicates a higher production or business expense of cost for the firms or suppliers as now they have to pay higher salaries and wages to their workers and employee which increases their overall production cost or expense.Now,considering the market price of goods and services as unchanged or fixed,such a change in income or wage will reduce the sales revenue of the firms or suppliers and consequently,to avoid any financial loss or revenue reduction,they will reduce the supply of goods and services in the market.