Chapter 13, Problem 23AA

a)

To determine

To evaluate: The economic problem is shown in the cartoon.

Explanation of Solution

From the image of the first cartoon, states that housing prices are increases up to 30% this year that indicates inflation problem took place. Inflation refers to the price increase compared to base year. Inflation can be because of the increase in demand and also from the rise in the cost .

Economics Concept Introduction

Introduction: The economic problem also known as the fundamental or core economic problem, states that an economy's limited resources that need to be utilize fruitfully.

b)

To determine

To ascertain: The strategies’ that will be adopted by the employees to tackle this problem.

Explanation of Solution

There are different ways to tackle inflation, but if the price of fuel increases, the best way for employees to do this is to share the cost of car fuel among friends who have to come together in the same direction.

Economics Concept Introduction

Introduction: Cost-push inflation is a form of inflation induced by substantial cost rises for critical goods or services where no options exists. The result is higher prices, as the production cost increases due to a decrease in aggregate supply. This stands in comparison to demand-pulling inflation.

c)

To determine

To ascertain: Whether the statement given by the boss is right or wrong.

Explanation of Solution

From the company's perspective a minimum wage rises would increase their production costs. Theoretically, a higher in wage could lead to inflation for higher worker spending (demand pull inflation). Because cost of production is one of the important factor in deterring the price of a product.

Economics Concept Introduction

Introduction: Empirical statistics indicate that actual incomes fall dramatically during times of high inflation. In this case , real wages lowers through inflation (1) a decrease in stock of capital , and (2) a relative increase in price. The two results are combined and make the real decrease in income higher than the fall in GDP per capita.