According to the Rational Expectations Theory, If All Firms Have

question 100

Multiple Choice

According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market

• A) will never exist.
• B) will only exist in times of high inflation.
• C) will only be temporary.
• D) will be a common occurrence.

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Definitions:

Kinked Demand Curve

The demand curve for the cutthroat oligopolist, which is based on the assumption that competitors will match a price cut, but will not match a price increase.

Collusive Oligopoly

A market condition where a few companies or entities cooperate to restrict competition and control prices for their mutual benefit.

Price Leadership

A situation in which one company, the price leader, sets the price of goods or services within its market and other companies in the sector follow suit.

Sticky Prices

A situation where prices of goods and services are slow to change in response to changes in supply and demand or economic conditions.