The short-run aggregate supply curve is perfectly inelastic in the classical range because:
A) large amounts of unused labor and other inputs can be obtained at no additional cost.
B) nominal wages are sticky, so firms can supply additional output at higher price.
C) input and output prices change at the same rate, so there is no incentive to produce extra output.
D) a higher price leads to lower demand, so there is no incentive to produce extra output.

Question

Quizplus · Accepted Answer

In the classical range, it is assumed that prices of inputs (like wages) and outputs adjust simultaneously and proportionately in response to changes in demand or supply. This means that firms have no incentive to change their level of production because their costs and revenues change at the same rate, keeping profit margins constant. Thus, the short-run aggregate supply curve is viewed as perfectly inelastic in this scenario.

The Short-Run Aggregate Supply Curve Is Perfectly Inelastic in the Classical