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

Question

Quizplus · Accepted Answer

If wage increases are less than productivity increases, firms will be producing more output with the same amount of labor cost. This leads to a decrease in unit costs for firms, which shifts the aggregate supply curve to the right. A rise in the price of oil (A) would increase firms' costs and shift the aggregate supply curve to the left. Government increases in payroll taxes (B) would increase firms' costs and also shift the aggregate supply curve to the left. If wages fall (C), this could potentially decrease unit costs, but it depends on the overall impact on production costs. Wage and price controls (D) could distort the market and reduce flexibility for firms, leading to inefficiencies and potentially higher costs.

Consider the Economy's Aggregate Supply Curve