How do changes in the money wage rate affect the LAS and SAS curves? Explain your answer
What will be an ideal response?
If the money wage rate changes, the LAS curve is not affected but the SAS curve shifts. For instance, if the money wage rate rises, the LAS curve does not change but the SAS curve shifts leftward. The difference occurs because moving along the LAS curve both the money wage rate and price level change in the same proportion. So in this case, a change in the money wage rate is matched by a change in the price level and firms have no incentive to change their production of goods and services. But moving along the SAS curve, only the price level changes. So when the money wage rate changes and the price level does not change, firms have an incentive to change their production. For instance, if the money wage rate rises and the price level does not change, then firms decrease their production of goods and services and the SAS curve shifts leftward.
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Figure 33-1
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Which of the following is true about the economy depicted in Figure 33-1?
A. Economy is experiencing supply-side inflation. B. Policymakers have chosen to fight inflation rather than unemployment. C. The increase in aggregate demand has increased prices but not real GDP. D. The slope of the aggregate supply curve embodies the trade-off between unemployment and inflation.
Economic freedom by its nature suggests
A) minimal government interference. B) a lack of laws and regulations. C) economic anarchy. D) zero government.
Refer to the Article Summary. Assume that foreign governments begin to publicize their existing medical services to American medical tourists and more Americans consider hip-replacement surgery to improve their quality of life
What will happen in the market for hip-replacement surgery as a result of these two factors? A) Demand will increase, but these two factors will not shift the supply curve. B) Demand will increase and supply will decrease. C) Supply will increase, but these two factors will not shift the demand curve. D) Demand and supply will both increase.
If different markets for a product produced by a monopolist can be separated and if the elasticity of demand differs between the two markets, then the monopolist will
A) be able to make higher profits by using price discrimination. B) charge a single price in all markets. C) go out of business. D) sell the product in only one of the markets with inelastic demand curves.