If Prices Are "Stuck" and There Is an Unexpected Demand

question 30

Essay

If prices are "stuck" and there is an unexpected demand decrease, describe what happens in the economy.

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Definitions:

Marginal Cost

The additional cost incurred by producing one more unit of a particular good or service.

Sunk Cost

Expenses that have already been incurred and cannot be recovered, which should not influence future business decisions.

Scrap Value

The estimated resale value of an asset after its useful life is over and it is deemed to no longer be usable for its intended purpose.

Contribution Margin

The difference between sales revenue and variable costs of a product, indicating how much contributes towards covering fixed costs and earning profit.