Question

Suppose a change in healthcare laws increases the cost of hiring an employee. We can expect output in the short run to ________ and output in the long run to ________.

Answer 1

Answer: a. decrease; be unaffected

Step-by-step explanation:

In the short run, prices are sticky which means that they cannot be changed easily.

In the short run for this question, with an increase in the cost of hiring an employee, output will decrease because companies will hire less workers who will simply produce less as they cannot afford to pay more at current prices.

In the long run however, prices would have adjusted themselves so companies will be able to hire employees at the new wage and still have enough to pay them due to the rise in the price of health care so output will come back to equilibrium.