If Overall Labor Productivity Is Increasing at an Average Rate

question 28

Multiple Choice

If overall labor productivity is increasing at an average rate of 3 percent per year but by only
1 percent per year in the shoe manufacturing industry,then under the Kennedy-Johnson guidelines,wages of shoe workers should increase by ________ percent per year; prices of
Shoes should ________.

• A) 1; not change
• B) 1; increase by 1 percent per year
• C) 3; increase by 2 percent per year
• D) 3; not change
• E) 3; decrease by 2 percent per year

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Definitions:

Negative Externalities

Costs that result from an activity or transaction and affect third parties who did not choose to incur that cost.

Quantity Decrease

A reduction in the amount or number of a particular good or service that is available or being produced.

Efficiency Losses

The reduction in economic efficiency due to imbalances or distortions in the market, often manifesting as excess or insufficient production and consumption.

Output Level

The quantity of goods or services produced by a firm or economy in a given period.