In the short run, an unexpected increase in prices will
A) reduce resource prices and increase the quantity of goods supplied.
B) decrease the productive capacity of firms and decrease the quantity of goods supplied.
C) increase the profits of firms, thereby leading them to expand output.
D) increase the profits of firms, thereby leading them to reduce output.

Question

Quizplus · Accepted Answer

In the short run, an unexpected increase in prices typically increases the profits of firms because their costs (such as wages and raw materials) do not immediately rise. This profit incentive encourages firms to expand output.

In the Short Run, an Unexpected Increase in Prices Will