The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:
A) from minute to minute.
B) from year to year.
C) in the long run.
D) in the short run.

Question

Quizplus · Accepted Answer

The assumption of flexible prices implies that prices adjust quickly and easily in response to changes in demand and supply. This is more likely to occur in the long run when firms have enough time to adjust to changing market conditions, such as changes in input costs, technology, consumer preferences, and competition. In the short run, prices may be relatively rigid due to factors such as contractual agreements, menu costs, and other adjustment costs, which can prevent firms from adjusting prices as frequently or as quickly as they would like. Therefore, the assumption of flexible prices is not a plausible assumption in the short run, and it is less likely to be valid for price changes that occur from minute to minute, but it may hold in the long run when markets are more competitive and efficient.

The Assumption of Flexible Prices Is a More Plausible Assumption