Discuss the Correct and Incorrect Economic Analysis in the Following

question 18

Essay

Discuss the correct and incorrect economic analysis in the following statements.
"Unifor (the union that represents Canadian auto workers, among other industries)has successfully negotiated a 9 percent increase in wages for its workers.This increase in the wage rate causes an increase in demand for automobiles, since many consumers now have greater incomes, and also causes a decrease in supply of automobiles because the cost of production has increased.These effects cancel each other out resulting in no change in the equilibrium price and quantity in the automobile market."

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Definitions:

Fixed Cost

Describes expenses that do not change with the level of production or business activity, such as rent, salaries, and insurance premiums.

Variable Cost

Costs that change in proportion to the good or service that a business produces.

Total Cost

The complete cost of production, including both fixed and variable costs.

Average Variable Cost

The cost per unit of producing goods or services that changes with the level of output, including costs like labor and materials, divided by the quantity of output produced.