Macroeconomics 20th Edition by Campbell McConnell ,Stanley Brue ,Sean Flynn

Exercise 13

Catalogue companies are committed to selling at the prices printed in their catalogues. If a catalogue company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? Was it unexpectedly high, unexpectedly low, or as expected? If the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? Given that the company cannot change the price of sweaters, consider the number of sweaters it orders each month from the company that makes its sweaters. If inventories become very high, will the catalogue company increase, decrease, or keep orders the same? Given what the catalogue company does with its orders, what is likely to happen to employment and output at the sweater manufacturer?