Suppose the price level falls but suppliers only notice that the price of their particular product has fallen Thinking there has been a fall in the relative price of their product they cut back on production, This is a demonstration of the ?
Correct answer: A. misperceptions theory of the short run aggregate supply curve
- A. misperceptions theory of the short run aggregate supply curve
- B. classical dichotomy theory of the short run aggregate supply curve
- C. sticky price theory of the short run aggregate supply curve
- D. sticky wage theory of the short run aggregate supply curve
Explanation
The misperceptions theory says suppliers may mistake a fall in the overall price level for a fall in the relative price of their own product. They then reduce production, producing an upward-sloping short-run aggregate supply curve.
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