Question

5) If workers demand and receive higher real wages (a successful wage push), the cost of production ________ and the short-run aggregate supply curve shifts ________. A) rises; rightward B) falls; rightward C) rises; leftward D) falls; leftward

Answer 1

The answer is C.

Step-by-step explanation:

If workers demand and receive higher real wages the cost of production will rise. This is because workers(labor) is an input of production. The wages is the reward for the direct labor for work done. So increase in wages lead to an increase cost of production.

Due to this, the short-run aggregate supply curve shifts leftward i.e reduces the market supply because producers will produce less at a high cost of production and produce more at a lower cost of production.