^{Let price expectations be represented by}^P^e⁼^P^{^}⁺^b^Pi ^-^P^{^}⁾^{, with}^P^e representing firms' expected general price indicators, representing some^general^forecast^of^future^prices,^and^Pi ^representing^the^firms'^own^prices.^If^b1 ^{were the}^b^{coefficient for some large firm in a primary industry like steel and}^b2 ^{were the}^b^coeff^{icient for a small firm in an unimportant, endproduct} industry, then you would expect that A) ^b1 ^^b2^. B) ^b1 ^

Question

^{Let price expectations be represented by}^P^e⁼^P^{^}⁺^b^Pi ^-^P^{^}⁾^{, with}^P^e representing firms' expected general price indicators, representing some^general^forecast^of^future^prices,^and^Pi ^representing^the^firms'^own^prices.^If^b1 ^{were the}^b^{coefficient for some large firm in a primary industry like steel and}^b2 ^{were the}^b^coeff^{icient for a small firm in an unimportant, endproduct} industry, then you would expect that A) ^b1 ^>^b2^. B) ^b1 ^<^b2^. C) ^b1 ⁼^b2^. D) any of the above could hold depending on the foreign trade significance of the two industries. E) any of the above could hold depending on unspecified economic circumstance.

Quizplus · Accepted Answer

The larger firm in the primary industry is more likely to be affected by general price changes, so its price expectations will be more closely tied to the general forecast of future prices.

Let Price Expectations Be Represented by Pe = P^

^{Let Price Expectations Be Represented by}^P^e⁼^P^{^}