When the Price Level Rises Unexpectedly, Some Businesses May Mistake

question 34

True/False

When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase in the price of their product relative to others and so decrease their production.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting the goods' sensitivity to price changes.

Laffer Curve

A theory that illustrates the relationship between tax rates and the amount of tax revenue collected by governments.

Deadweight Loss

A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is unattainable.

Tax Per Unit

A tax that is levied on a per unit basis, meaning for every unit of a good produced or sold, a certain amount of tax is paid.