Question

can someone explain please

Question 5 0/2 pts Which of the following is most likely to cause an increase in the inflation rate? a reduction in the percentage of workers who are in labor unions an increase in competition between firms an increase in the non-labor costs of production an increase in the unemployment rate Rising unemployment tends to put downward pressure on wages and prices.

Answer 1

Solution

1) option C is correct

As the cost of production rises, it becomes unprofitable for the firms to expand their production. As a result they reduce their production and supply of goods fall. Due to under production or low supply of goods/ services, it results into scarcity of goods and in turn prices of such goods rise. Rising in price level results into increase in the inflation rate.

Now option a can't be true as reduction of workers in labor unions mean that more workers are now willing to take up a job. Supply of workers in the labor force rises, thus wages fall and general price also falls.

Also option b is not correct, due to competition a uniform price is set in the market. Firms become price taker.

Option D is also incorrect, rising unemployment means supply of workers rise, as a result wages and in turn prices fall.

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