|Aug31-11, 05:51 PM||#35|
What would happen in the economy if...
|Sep5-11, 12:50 AM||#36|
I think most of you gave the correct answer. If everyone income is shifted up by some constant then economic theory says that prices must change as demand will change. In economics, prices are the outcome of the Walrasian Equilibrium (demand must equal supply), and thus the prices will adjust to guarantee this result. This is the statics of the problem.
The question becomes with regard to the dynamics of the problem how will the markets adjust to reach this stable equilibrium point. However, that requires knowledge of the organization of the market, and such. It might take several years to achieve the new equilibrium point, but there's no guarantee of stability as the problem stated do not give any details.
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