Discuss the correct and incorrect economic analysis in the following statement
"The United Auto Workers Union 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 a decrease in the supply of automobiles because the cost of production has increased. These effects cancel each other out resulting in no change in equilibrium price and quantity in the automobile market."
The wage rate is a determinant of the supply of automobiles, but not a determinant of the demand for automobiles. The increase in the wage rate will shift the automobile supply curve to the left along a given demand curve. This will result in a higher equilibrium price and a lower equilibrium quantity in the market for automobiles.
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A needed reform in the U.S. income tax system that would reduce the costs of inflation is to
A) go back to taxing nominal wage and salary income. B) start taxing real wage and salary income. C) go back to taxing nominal interest income. D) tax real interest income.
A change in the wage causes a shift in the supply curve for labor and a
A) shift along the demand curve for labor. B) shift in the demand curve for labor. C) rotation in the demand curve for labor. D) It cannot be determined by the information provided.