The Sticky Price Explanation of the Short-Run Aggregate Supply Curve

question 116

Multiple Choice

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

• A) some firms will immediately pass the higher prices to consumers.
• B) because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales.
• C) firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales.
• D) consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand.

---

Definitions:

Psychological Exchange

Refers to a transaction or interaction between individuals that involves emotional or cognitive considerations, often in the context of relationships or social behavior.

Economic Exchange

The process of trading goods, services, or both, involving the transfer of money or other valuables between parties.

Reciprocity Norm

A social norm that suggests individuals should repay, in kind, what another has provided or done for them.

Role Transference

A psychological phenomenon where an individual assumes the attitudes, behaviors, or roles of another group or person, often seen in marketing when consumers identify with brand personalities.