The "Information Barrier" That Is the Root Cause of Business

question 56

Multiple Choice

The "information barrier" that is the root cause of business cycles in the Lucas model is that

• A)workers observe the prices of what they personally buy,but cannot observe the general price level.
• B)workers do not know when changes in the price level mean changes in the prices of the goods they buy.
• C)firms do not know when changes in the price of the good they sell matches changes in the price level and thus their marginal cost.
• D)firms do not know if a change in the price level will have any effect on their marginal cost and thus their willingness to supply.

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Definitions:

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price, where demand and supply are equal.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy matches the amount that producers are willing to sell, thereby achieving equilibrium in the market.

Law of Demand

The principle stating that, all else being equal, as the price of a good increases, its demand falls and vice versa.

Market for Pizza

An example of a niche market, focused specifically on the buying and selling of pizza, influenced by consumer preferences and economic factors.