Question

According to the sticky-price model, one reason prices are sticky is Group of answer choices A)expectations...

According to the sticky-price model, one reason prices are sticky is

Group of answer choices

A)expectations are formed adaptively rather than rationally.

B)some firms do not adjust their prices instantly to changes in demand.

C)firms confuse changes in the overall level of prices with changes in relative prices.

D)the real wage adjusts to bring labor supply and labor demand into equilibrium.

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Answer #1

Hi student,

I have answered your question. Please let me know if you have any queries in the comments.

Answer – One of the explanations for the upward sloping short run AS curve is kn0own as the sticky price model. This model states that firms cannot adjust prices in the short run due to changes in demand. Sometimes prices are set by long term contracts between firms and customers. Firms may hold prices steady so as to not annoy the customers by changing prices frequently. So, the most important concept behind the sticky wage model is that firms do not adjust their prices instantly to changes in demand.

So, option B is the correct answer.

If you are happy with the answer, please rate with a thumbs-up. Stay well and stay safe! :)

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