Price Flexibility Plays a Key Role in the Classical Model

question 74

Essay

Price flexibility plays a key role in the classical model by ensuring that the markets reach equilibrium.
a.Explain which price adjusts to bring equilibrium in the labor market. Describe how the price adjusts when demand exceeds supply in this market.
b.Explain which price adjusts to bring equilibrium in the loanable funds market.
Describe how the price adjusts when supply exceeds demand in this market.

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Definitions:

World Commodity Prices

The prices at which basic products, which are traded globally, are sold and bought in the international markets.

Short Run

(1) In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. (2) In macroeconomics, a period in which nominal wages and other input prices do not change in response to a change in the price level.

Long Run

In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed. In macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in a nation’s price level.

U.S. Electricity

The system of electrical generation, transmission, and distribution operated within the United States.