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How firms can get around stickiness of price? Illustrate your answer with a graph.

How firms can get around stickiness of price? Illustrate your answer with a graph.

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Answer #1

Firms may want to keep prices same despite changes in the economy. It can be referred to as nominal rigidities or wage stickiness. Sometimes when demand for a product is volatile due to the seasonality of the product then firms would want to maintain fixed price.

Sometimes government controls price in terms of price ceiling when the price is set below equilibrium price and price floor occurs when the price is set above equilibrium price creates shortage or surplus respectively.

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