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INFLEXIBLE PRICES: The proposition that some prices adjust slowly in response to market shortages or surpluses. This condition is most important for macroeconomic activity in the short run and short-run aggregate market analysis. In particular, inflexible (also termed rigid or sticky) prices are a key reason underlying the positive slope of the short-run aggregate supply curve. Prices tend to be the most inflexible in resource markets, especially labor markets, and the least inflexible in financial markets, with product markets falling somewhere in between.
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Lesson 8: Market Shocks | Unit 4: Double Shifts
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Page: 14 of 20
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Topic:
More Demand and Less Supply
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Here we have demand increasing (higher income) and supply decreasing (number of sellers declines).- An increase in demand causes an increase in both price and quantity.
- A decrease supply causes price to increase and quantity to decrease.
- The combined effect is an obvious increase in price but a questionable change in quantity.
- At the new equilibrium the quantity is indeterminant.
- If demand shifts relatively more than supply, quantity is greater.
- If demand shifts relatively less than supply, quantity is less.
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CREATIVE DESTRUCTION A fundamental process of capitalism, popularized by Joseph Schumpeter, in which the benefits of growth and prosperity induced by innovations also result in the costs of disrupting existing means of production. The creation of new activity involves the destruction of existing activity. This notion attributes business-cycle instability to innovations, including both the expansionary rise of prosperity, as well as a contractionary decline. Creative destruction is based on the idea that rather than tending toward equilibrium, the economy is largely in flux. A key question is one of cause and effect. Does innovation cause destruction or does destruction induce innovation?
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WHITE GULLIBON
[What's This?]
Today, you are likely to spend a great deal of time wandering around the downtown area looking to buy either a video camera with stop action features or one of those memory foam pillows. Be on the lookout for defective microphones.
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The average bank teller loses about $250 every year.
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"It is part of the American character to consider nothing as desperate. " -- President Thomas Jefferson
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DOL
Department of Labor
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