According to the sticky-price theory, which statement is consistent with an unexpected fall in the price level?
A) Some firms' prices are lower than desired, which increases their sales.
B) Some firms' prices are lower than desired, which depresses their sales.
C) Some firms' prices are higher than desired, which increases their sales.
D) Some firms' prices are higher than desired, which depresses their sales.

Question

Quizplus · Accepted Answer

The sticky-price theory suggests that when the price level falls unexpectedly, some firms are unable to adjust their prices downward immediately. As a result, their prices are higher than the market equilibrium, leading to a decrease in sales.

According to the Sticky-Price Theory, Which Statement Is Consistent with an Unexpected