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One explanation for an upward-sloping short-run aggregate supply curve is the misperception effect, which is based on: a) producers' tendency of increasing supply when they observe rising costs of production with decreasing price level
One explanation for an upward-sloping short-run aggregate supply curve is the misperception effect, which is based on:
a) producers' tendency of increasing supply when they observe rising costs of production with decreasing price level.
b) producers' tendency of increasing supply when they observe fixed-wage labor contracts.
c) producers' tendency of increasing supply when they observe a fall in prices.
d) producers' tendency of increasing supply when they observe a rise in prices.
e) producers' tendency of increasing supply when they observe falling profit margins with increasing price level.
Expert Solution
Option D
The correct answer is Option D.
The short-run aggregate supply curve is upward sloping due to the tendency of producers of increasing supply when they observe a rise in prices. The SRAS is upward sloping due to worker-misperception. When prices increase in the economy, firms raise the nominal wages of workers. This induces workers to work more, resulting in an increase in the output.
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