If prices are sticky, output in an economy will be mostly determined by the level of demand

Business Dec 27, 2020

If prices are sticky, output in an economy will be mostly determined by the level of demand.

A) True

B) False

Expert Solution

True

The above statement is true with the concepts of Economics. Sticky prices mean that the prices for a commodity fail to change with changes in other factors related to the commodity. There is the resistance of the price for a commodity to change as per the current economic conditions. This is known as sticky prices and this also results in disequilibrium in the market. For example, a manufacturer was selling a car for $3,000 in the market when the demand for the car was high. After the demand for the car has fallen, the manufacturer continues to sell it for the same price. So, the car has a sticky price. The output manufactured of the car will depend on the demand for the car in the market.

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