The Imperfect-Information Model of the Lucas Aggregate Supply Curve Assumes

question 38

Multiple Choice

The imperfect-information model of the Lucas aggregate supply curve assumes that

• A)firms cannot be sure whether higher prices are caused by higher demand or simply reflect an increase in the overall price level
• B)outsiders have imperfect information and only insiders can take part in wage negotiations
• C)in an imperfectly competitive environment even small menu costs will deter firms from changing their prices
• D)even under imperfect information, firms make optimal decisions, so the full-employment level of output is always maintained
• E)all of the above

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Definitions:

Transfer Price

The internal charge assigned to the exchange of goods or services between the departments or divisions of the same organization, affecting both profitability and tax liabilities.

Outside Supplier

An external entity or company that provides goods or services to another company, often part of the supply chain.

Idle Capacity

Unused production capacity, indicating available resources that are not currently being utilized.

Transfer Price

Transfer price refers to the price charged for goods or services transferred between departments or divisions within the same company or between affiliated entities.