|
ACCOUNTING COST: The actual outlays or expenses incurred in production that shows up a firm's accounting statements or records. Accounting costs, while very important to accountants, company CEOs, shareholders, and the Internal Revenue Service, is only minimally important to economists. The reason is that economists are primarily interested in economic cost (also called opportunity cost). That fact is that accounting costs and economic costs aren't always the same. An opportunity or economic cost is the value of foregone production. Some economic costs, actually a lot of economic opportunity costs, never show up as accounting costs. Moreover, some accounting costs, while legal, bonified payments by a firm, are not associated with any sort of opportunity cost.
Visit the GLOSS*arama
|
|

|
|
                           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 prices (also termed rigid prices 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 between the two. Price inflexibility prevents resource markets from eliminating shortages and surpluses and achieving equilibrium. In other words, wages do not decline even when unemployment rises. Inflexible resource prices, especially wages, help to explain the positive slope of the short-run aggregate supply curve when the price level declines. In particular, when the aggregate economy is faced with falling aggregate demand, resource employment and real production tend to fall first, bearing the brunt of the reduction, while resource prices remain relatively unchanged.Prices, especially resource prices, tend to be inflexible for five reasons. - First, producers often have long-term, multi-year contracts with resource suppliers that specify resource prices. The best example is collective bargaining agreements between firms and labor unions. For most employers, as well as the labor unions, it is often easier to lay off a few workers temporarily than it is to renegotiate an agreement that contains lower wages.
- Second, workers tend to view wages as an indication of intrinsic self-worth. If an employer should try to reduce wages, workers are inclined to view this as a personal insult. These workers might then opt for temporary unemployment, awaiting to be re-hired or seeking other jobs AT EXISTING WAGES, rather than continuing their current work at lower wages.
- Third, the processes involved with employing and paying workers, especially such things as payroll systems, are often guided by inertia. Once wages are established (that is, entered into computer databases) explicit actions must be taken to change them. Because these actions are not costless, firms need a good reason to make changes. In other words, firms employing thousands of workers are unlikely to make small daily, weekly, or even monthly changes in wage rates.
- Fourth, firms might actually opt to reduce employment rather than wages as a means of getting rid of the least productive workers. In other words, the firms can use a decline in sales and production as an opportunity to "clean house." Once done, the firm ends up with a workforce that is, on average, more productive and more efficient. For example, a firm with ten employees that needs to cut wage cost by 10 percent might be inclined to fire one worker, the least productive, rather than cutting wages for all ten workers.
- Fifth, many firms, especially small ones, are price takers in resource markets. They have NO control over the resource prices set by the market. Should they find it necessary to cut wage cost, their ONLY option is to reduce employment and production.
 Recommended Citation:INFLEXIBLE PRICES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 18, 2025]. Check Out These Related Terms... | | | | | Or For A Little Background... | | | | | | | | | And For Further Study... | | | | | | | | | | | | |
Search Again?
Back to the WEB*pedia
|


|
|
BEIGE MUNDORTLE [What's This?]
Today, you are likely to spend a great deal of time strolling around a discount warehouse buying club hoping to buy either a case for your designer sunglasses or arch supports for your shoes. Be on the lookout for crowded shopping malls. Your Complete Scope
This isn't me! What am I?
|
|
Francis Bacon (1561-1626), a champion of the scientific method, died when he caught a severe cold while attempting to preserve a chicken by filling it with snow.
|
|
"A winner is someone who recognizes his God-given talents, works his tail off to develop them into skills, and uses those skills to accomplish his goals. " -- Larry Bird, basketball player
|
|
ANN REPT Annual Report
|
|
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.
User Feedback
|

|