Is there downward price inflexibility applicable to today’s economy? What factors might explain it?
What will be an ideal response?
Economists give many reasons for the downward price-level inflexibility in the economy. They note that the price level has not declined since one year in the 1950 despite the fact that there have been many recessions since then, including the severe recession of 2007–2009. The reasons for price-level inflexibility include fear of price wars, the menu cost of making price changes, long-term wage contracts, the payment of efficiency wages, and a minimum wage.
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The classical economists believed that
a. labor supply is upward sloping because the income effect is greater than the substitution effect. b. labor supply is upward sloping because the substitution effect is greater than the income effect. c. labor supply is downward sloping because the income effect is greater than the substitution effect. d. in equilibrium, the marginal product of labor must exceed the real wage. e. both b and d.
Using prices to promote efficiency in the utilization of bridges,
a. higher prices should be charged for the use of the most crowded bridges. b. lower prices should be charged for the use of the uncrowded bridges. c. traffic would be equalized among the bridges where space is a scarce resource. d. All of the above are correct.