Union bargaining power from product demand elasticity

Steps:

• Identify factors affecting union leverage: ability to raise wages without firm losing profits or sales.
• Evaluate product demand: inelastic demand allows price increases post-wage hikes with minimal quantity drop.
• Assess labor market conditions: strong union coverage and low unemployment enhance pressure.
• Compare cost structures: low wage share in costs makes hikes easier for firms to absorb.

Why A is correct:

• Inelastic demand means consumers buy similar quantities despite price rises, so firms pass wage costs to buyers without revenue loss (law of demand).

Why the others are wrong:

• B: High unemployment increases worker replacement ease, weakening union threats.
• C: Low union proportion reduces collective action and strike impact.
• D: High wage costs amplify profit squeeze from hikes, hardening firm resistance.

Final answer: A