Discuss the correct and incorrect economic analysis in the following statement
"The United Auto Workers Union has successfully negotiated a 9 percent increase in wages for its workers. This increase in the wage rate causes an increase in demand for automobiles, since many consumers now have greater incomes, and also a decrease in the supply of automobiles because the cost of production has increased. These effects cancel each other out resulting in no change in equilibrium price and quantity in the automobile market."
What will be an ideal response?
The wage rate is a determinant of the supply of automobiles, but not a determinant of the demand for automobiles. The increase in the wage rate will shift the automobile supply curve to the left along a given demand curve. This will result in a higher equilibrium price and a lower equilibrium quantity in the market for automobiles.
You might also like to view...
Some argue that a nation should not depend too heavily on other countries for supplies of certain key products, special materials, or technologies that might have ______________ applications.
a. general b. scientific c. national security d. international
What is the self-correcting mechanism that firms have and government agencies do not have?
a. Competitors b. Annual budgets c. Technology restrictions d. Unskilled employees
As income increases, consumption increases too, but not as rapidly. This is a statement of the:
A. Production function. B. Consumption function. C. Substitution effect. D. Income effect. E. Wealth effect.
Other things equal, in which of the following cases would economic profit be the greatest?
A. A regulated monopolist charging a price equal to average total cost. B. A regulated monopolist charging a price equal to marginal cost. C. An unregulated monopolist who is able to engage in price discrimination. D. An unregulated, nondiscriminating monopolist.