If the Price of Labor Increases, the Typical Perfectly Competitive

question 16

Multiple Choice

If the price of labor increases, the typical perfectly competitive firm in the short run will

• A) produce more output.
• B) hire less labor.
• C) hire the same labor and produce the same output.
• D) hire more labor.

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Definitions:

Health Insurance

A type of insurance that covers the whole or part of the risk of a person incurring medical expenses, spreading the risk over numerous individuals.

Adverse Selection

A situation in which sellers have information that buyers do not have, or vice versa, leading to an inefficient market outcome.

Moral Hazard

A situation in which there is a tendency to take riskier behavior when protected from the consequences of that behavior, often seen in insurance and finance.

Asymmetric Information

A situation in economics where one party in a transaction has more or better information than the other, leading to potential imbalances in decisions and market outcomes.