Under the assumptions of a Lucas supply curve,
A) firms do not respond significantly to changes in their own relative prices.
B) firms generally respond significantly to changes in their own relative prices.
C) firms generally respond significantly to changes in aggregate prices.
D) firms generally ignore changes in aggregate prices.
E) none of the above.

Question

Quizplus · Accepted Answer

Under the assumptions of a Lucas supply curve, firms generally respond significantly to changes in their own relative prices. This is because they interpret these changes as relative price changes rather than changes in the overall price level, leading to adjustments in their supply.

Under the Assumptions of a Lucas Supply Curve