If firms have ________ and if they set prices and wages on this basis, then prices and wages will, on average, be set at market-clearing levels.
A) negative inventories
B) rational expectations
C) excess capacity
D) no competition

Question

Quizplus · Accepted Answer

If firms have rational expectations, they will make decisions based on what they believe will happen in the market. This will include taking into account supply and demand factors in order to determine prices and wages. Rational expectations should result in prices and wages being set at market-clearing levels, as firms will not want to overprice their goods and services and risk losing customers, or underprice them and miss out on potential profits.

If Firms Have ________ and If They Set Prices and Wages