Suppose That There Is an Increase in the Costs of Production

question 116

Multiple Choice

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left.If there is no policy response,then eventually

• A)because unemployment is low,wages will be bid up and short-run aggregate supply will shift right.
• B)because unemployment is low,wages will be bid down and short-run aggregate supply will shift right.
• C)because unemployment is high,wages will be bid up and short-run aggregate supply will shift right.
• D)because unemployment is high,wages will be bid down and short-run aggregate supply will shift right.

---

Definitions:

Product Cost

The total cost to produce a product, including direct labor, materials, and manufacturing overhead.

Prime Cost

The direct costs of manufacturing an item, which include direct materials and direct labor costs, but exclude overhead costs.

Conversion Cost

The total expenses of direct labor plus manufacturing overheads used to transform raw materials into finished products.

Cost of Goods Manufactured

The total cost of materials, labor, and manufacturing overhead used to produce goods over a specific period.