SOLVED

1) In a perfectly competitive market ________. A) the goods purchased are assumed to be standardized products B) prices adjust quickly to equilibrium C) buyers and sellers are price takers D) all of the above E) none of the above 2) In a perfectly competitive market ________. A) most goods and services are not standardized B) prices adjust slowly to equilibrium C) buyers and sellers do not set prices and can only decide how much to buy and sell D) all of the above E) none of the above 3) Under monopolistic competition ________. A) many goods and services are not standardized B) prices adjust slowly to equilibrium C) even if there is substantial competition in the market, some firms can set prices D) all of the above E) none of the above 4) Under monopolistic competition ________. A) the goods purchased are assumed to be standardized products B) it is good (or brand) differentiation that likely accounts for some price stickiness C) buyers and sellers do not set prices and can only decide how much to buy and sell D) all of the above E) none of the above 5) Under monopolistic competition ________. A) prices are flexible, because producers can change them as often as they wish B) prices are flexible, because producers can never set a price other than the market price C) prices are flexible, because producers adopt Keynesian policies D) all of the above E) none of the above 6) Menu costs ________. A) are the cost a firm bears when it changes its prices B) are one source of price stickiness because changing prices involves many hidden costs C) are one source of price stickiness because firms may not want to change their “menus” too often and risk alienating customers D) all of the above E) none of the above 7) Rational inattention refers to ________. A) the risk a firm runs when they do not pay attention to their customers B) firms making infrequent price decisions because of the time and effort those decision require C) the cost to the firm of losing sales from alienating customers D) all of the above E) none of the above 8) Which of these is an example of rational inattention? A) submitting a paper with a few typos, knowing that they won’t affect the grade B) sleeping in later than you had intended C) a firm delaying price changes to avoid losing customers D) a firm being unsure of its competitors’ prices E) a firm changing prices so often its customers stop noticing 9) Menu costs are an important source of price stickiness because ________. A) printing menus is costly B) putting items “on sale” reduces firms’ revenue C) frequent price changes may lead to losing customers D) all of the above E) none of the above 10) Staggered price setting ________. A) leads to frequent price adjustments B) occurs when firms fail to consider the behavior of their competitors C) is generally illegal D) all of the above E) none of the above 11) Staggered price setting ________. A) refers to the lack of coordination by firms in changing prices B) reduces price stickiness C) has been proven to occur in all sectors of the economy D) all of the above E) none of the above 12) Empirical evidence shows that prices are sticky ________. A) in all sectors of the economy B) in hardly any sectors of the economy C) except in response to changes within individual markets D) all of the above E) none of the above 13) Empirical evidence that changes in monetary policy do not cause rapid price adjustments ________. A) is consistent with the Keynesian emphasis on short-run economic fluctuations B) suggests that policymakers need not worry much about inflation C) remains limited and unconvincing D) is consistent with the classical dichotomy E) none of the above 14) Apply the concepts of menu costs and staggered price setting to the labor market. 15) Do you think that prices are more or less sticky today than 50 years ago? Why?