Which of the Following Explains Why Higher Prices in the Goods

question 180

Multiple Choice

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

• A) The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run.
• B) The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output.
• C) The higher prices will expand the economy's resource base and, thereby, stimulate additional output.
• D) The higher prices will improve technology and, thereby, stimulate additional output.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead involved in transforming materials into finished products.

Prime Costs

The combined costs of direct material and direct labor required to produce a good.

Conversion Costs

Costs incurred to convert raw materials into finished goods, including direct labor and manufacturing overhead.

Prime Costs

The combination of direct materials and direct labor costs that are directly attributable to the production of goods.