Economists have found that firms are

Question

Quizplus · Accepted Answer

According to the menu cost theory, firms face costs to change their prices, such as reprinting menus or updating computer systems. Therefore, if a shock to the economy affects all firms, they may be less likely to change prices since the cost of changing prices is spread out among all firms, whereas if the shock only affects a specific sector, the cost of changing prices falls solely on the firms in that sector. Additionally, if a shock to the economy is expected to be temporary, firms may be less likely to change prices, since it would be costly to change prices for a temporary shock. Therefore, firms are less likely to change prices as a result of shocks to the aggregate economy than shocks limited to the firm's particular sector.

Economists Have Found That Firms Are