Which of the following is an explanation for price stickiness?
I. There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II. Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III. Firms may have explicit long-term contracts to sell their products to other firms at specified prices.
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question

Which of the following is an explanation for price stickiness? 
I. There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II. Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III. Firms may have explicit long-term contracts to sell their products to other firms at specified prices.
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Quizplus · Accepted Answer

Price stickiness can be caused by adjustment costs associated with changing prices, such as the printing of new price lists, as well as explicit long-term contracts to sell products at specified prices. Worker unions may have an impact on the stickiness of prices, but it is not a guaranteed explanation in all situations. Therefore, choices I and III are the best explanations for price stickiness.

Which of the Following Is an Explanation for Price Stickiness