Multiple Choice
Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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A worker would be hurt least by inflation when the:
A
worker's nominal wage remains constant while prices rise
B
worker's real wage decreases due to inflation
C
worker's purchasing power falls as a result of inflation
D
worker's nominal wage increases at the same rate as inflation
Verified step by step guidance1
Understand the difference between nominal wage and real wage: Nominal wage is the wage measured in current dollars, without adjusting for inflation, while real wage is the wage adjusted for changes in the price level, reflecting the worker's purchasing power.
Recognize that inflation causes prices to rise, which reduces the purchasing power of money if wages do not increase accordingly.
Analyze each option by comparing the nominal wage growth to the inflation rate: if the nominal wage remains constant while prices rise, the real wage falls; if the real wage decreases, the worker is worse off; if purchasing power falls, the worker is hurt by inflation.
Identify that the worker is hurt least when the nominal wage increases at the same rate as inflation because this keeps the real wage constant, preserving the worker's purchasing power.
Conclude that maintaining the real wage (nominal wage growth equal to inflation rate) is the key to minimizing the negative impact of inflation on the worker.
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