The misperception effect explanation for an upward-sloping short-run aggregate supply curve is based on:
A)falling profit margins as the price level rises.
B)rising costs of production as the price level rises.
C)fixed wage labor contracts.
D)people mistaking changes in aggregate demand for changes in the demand for their goods relative to other goods and services.

Question

The misperception effect explanation for an upward-sloping short-run aggregate supply curve is based on:
A)​falling profit margins as the price level rises.
B)​rising costs of production as the price level rises.
C)​fixed wage labor contracts.
D)​people mistaking changes in aggregate demand for changes in the demand for their goods relative to other goods and services.

Quizplus · Accepted Answer

The misperception effect explanation suggests that an upward-sloping short-run aggregate supply curve can result from individuals mistaking changes in the overall demand for goods and services (aggregate demand) for changes in the demand specifically for their goods and services, leading them to adjust their supply accordingly.

The Misperception Effect Explanation for an Upward-Sloping Short-Run Aggregate Supply