In order for the classical economic model to work, prices and wages must be fully flexible.

Question

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The classical economic model assumes that prices and wages are fully flexible, meaning they can adjust easily and quickly to changes in supply and demand without any government intervention. This is because in this model, markets are assumed to be perfectly competitive and information is readily available to all buyers and sellers. However, in reality, prices and wages can be sticky and may not adjust as quickly or as easily, leading to market inefficiencies and potential macroeconomic problems like unemployment and inflation.

In Order for the Classical Economic Model to Work, Prices