Changes in labor supply are caused by several factors. For example, a sudden influx of workers from other areas due to famine, war, unemployment etc. could increase the number of people willing to work at all wages. Figure 8.8 demonstrates how the labor market adjusts. Labor supply curve shifts right, and the resulting excess supply of labor (L2 - L* ) causes the market wage level to drop from w* all the way down to w1 . As a result, the new equilibrium means lower wages (w1 <w* ) for more workers (L1 >L* )

The answer is E.