Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?
A) The price level increases less than expected so that firms believe the relative price of their output has increased.
B) The price level increases less than expected so that firms believe the relative price of their output has decreased.
C) The price level increases more than expected so that firms believe the relative price of their output has increased.
D) The price level increases more than expected so that firms believe the relative price of their output has decreased.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, when the actual price level is higher than expected, firms believe that the relative price of their output has increased, leading them to produce more output. Therefore, an increase in the quantity of output supplied would be consistent with a situation where the price level increases more than expected, which is described in choice C.

Which Statement Is Consistent with an Increase in the Quantity