Sticky Prices and Wages Are Often Cited as an Example

question 3

Essay

Sticky prices and wages are often cited as an example of market inefficiency. For example, many firms, during recessions, lay off workers. Yet many of these same firms are reluctant to begin hiring, even as the economic situation improves. Can you provide an explanation for this behavior that might demonstrate that it is rational?

---

Definitions:

Extinction

The process by which a learned behavior diminishes or disappears as a result of the repeated absence of an unconditioned stimulus or reinforcement.

Reward Centers

Brain structures that regulate the experience of pleasure and motivate individuals towards behaviors necessary for survival, such as eating and reproduction.

Latin Word

A term originating from Latin, a classical language that has contributed to many words in modern languages, especially in science, law, and medicine.

Knowledge

Facts, information, and skills acquired through experience or education; awareness or familiarity gained by experience of a fact or situation.