Assuming constant wages implies that
A)an increase in the price of goods raises profits and SAS is vertical.
B)a decrease in the price of goods lowers profits and SAS is horizontal.
C)an increase in the price of goods lowers profits and SAS is vertical.
D)an increase in the price of goods raises profits and SAS is positively sloped.

Question

Quizplus · Accepted Answer

Assuming constant wages means that as the price of goods increases, the cost of production (in terms of wages) remains the same, leading to higher profits. This scenario implies that the short-run aggregate supply (SAS) curve is positively sloped because as prices rise, firms are willing and able to supply more, given that their wage costs are fixed and profits increase.

Assuming Constant Wages Implies That