Explain the menu cost explanation of output fluctuations
What will be an ideal response?
Each wage setter or price setter is largely indifferent as to when and how often he changes his own wage or price. Therefore, even small costs of changing prices can lead to infrequent and staggered price adjustment. This staggering leads to slow adjustment of the price level and to large aggregate output fluctuations in response to movements in aggregate demand. In short, decisions that do not matter much at the individual level (how often to change prices or wages) lead to large aggregate effects (slow adjustment of the price level, and shifts in aggregate demand that have a large effect on output).
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The figure above shows the market for coffee. When the efficient quantity of coffee is produced, the marginal social cost of the last pound is
A) $2.50. B) $3.50. C) $3.00. D) $2.00.
In the Theory of Price, George Stigler points out that a monopolist is no less desirous of profits than a competitive firm. According to Stigler, what distinguishes the monopolist from other entrepreneurs?
a. strategy b. morality c. objective d. market position e. motivation
At the midpoint of a straight-line demand curve, the price elasticity of demand is:
A. less than one. B. zero. C. greater than one. D. equal to one.
One method used by the Federal Reserve to prevent abuse of the discount facility is
A) higher bank taxes. B) higher reserve requirements. C) tighter bank surveillance. D) selling fewer government securities to the banks involved.