Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to increase if
A)there is a rise in the price of oil.
B)the government reduces payroll taxes.
C)wage increases exceed productivity increases.
D)wages rise.
E)wage and price controls are in effect.

Question

Quizplus · Accepted Answer

Unit costs will tend to increase if wages increase at a faster rate than productivity because it means that each worker is producing less output per hour, which leads to higher costs to produce each unit of output. A rise in the price of oil (A) would increase costs for firms but not necessarily wages. Payroll tax reductions (B) would decrease costs for firms but not impact wages. Wages rising in general (D) would increase costs for firms but not necessarily impact unit costs if productivity also increases. Wage and price controls (E) would have varying effects on unit costs depending on how they are implemented.

Consider the Economy's Aggregate Supply Curve