Prices: Flexible Versus Sticky
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Questions and Answers

What is the central assumption in the model of the pizza market discussed in the text?

  • Prices adjust instantly to changes in supply and demand
  • Wages adjust quickly to changing conditions
  • Labor contracts set wages for up to three years
  • Markets are normally in equilibrium (correct)

    • How do economists typically view the adjustment of prices in markets?

  • Prices remain constant for long periods of time
  • Prices adjust only annually
  • Prices move quickly to balance quantity supplied and quantity demanded (correct)
  • Prices adjust slowly to changing conditions

    • What makes continuous market clearing unrealistic according to the text?

  • Prices adjusting instantly to changes in supply and demand
  • Magazine publishers changing newsstand prices every few years
  • The assumption that all wages and prices are flexible
  • Labor contracts setting wages for multiple years (correct)

    • In reality, which statement best describes the adjustment of many wages and prices?

    <p>They often remain unchanged for long periods</p> Signup and view all the answers

    What role do labor contracts play in the flexibility of wages according to the text?

    <p>They set wages unchanged for up to three years</p> Signup and view all the answers

    How does the text explain the sticky nature of prices in market-clearing models?

    <p>Prices remain constant for extended periods of time</p> Signup and view all the answers

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