CLEP Microeconomics Exam Prep

Category - Microeconomics

Imagine that the number of people who are graduating from medical school increases by 10% each year. If this is the case, which of the following statements about doctors’ salaries is true?
  1. Doctors’ salaries will increase
  2. Doctors’ salaries will decrease
  3. Doctors’ salaries will decrease if the demand is less than the supply
  4. Doctors’ salaries will decrease if the demand is greater than the supply
Explanation
Answer - C - If the number of people who are graduating from medical school increases each year, then doctors’ salaries will decrease only if the demand is less than the supply.

Key Takeaway: As always, both supply and demand are a factor. If the supply of new doctors increases, doctors’ salaries will only fall if the supply curve for doctors increases more than the demand curve for doctors increases. That is, the supply curve needs to shift to the right more than the demand curve shifts.
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