The Assumption to Ignore Inventory Adjustment in the Analysis of the Economy

question 27

Multiple Choice

The assumption to ignore inventory adjustment in the analysis of the economy in the short run is justified because

• A) changes in demand that are matched by changes in inventory do not affect production.
• B) economists are not held accountable for the assumptions they make.
• C) economists are unable to incorporate such relatively minor changes into the model.
• D) changes in sales are met with changes in production for the economy as a whole.
• E) inventories can be replenished or drawn down as seen fit by firms.

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Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Nonrefundable

Describing a payment or deposit that cannot be returned or refunded back to the payer under most circumstances.

Nontransferable

An attribute of an item or asset that cannot be legally transferred or assigned from one individual or entity to another.

Fixed Cost

Expenses that do not change with changes in the volume of production, such as rent, salaries, and insurance.