Suppose that a town has two major bottling plants. One of these bottling plants is unionized and the union has just negotiated a 7% wage increase each year for the next two years. Which of the following is most likely to occur?
A. The only effect will be that the price charged by the unionized bottling plant will increase to cover the additional costs of labor.
B. The price of labor will change in both the unionized and nonunionized bottling plants, but no other input markets will be affected.
C. The price of labor will change in both the unionized and nonunionized bottling plants. Employment of labor and other inputs is also likely to change in both bottling plants.
D. The price of labor in the unionized bottling plant will increase, but there will be no changes in the price of labor in the nonunionized bottling plant.
Answer: C
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