If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Question

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This statement describes a situation where prices are sticky downwards, meaning they do not adjust quickly to economic changes. When the general price level unexpectedly falls but some firms' prices do not adjust downward immediately, their products become relatively more expensive compared to the market. This discrepancy can lead to decreased sales for those firms, prompting them to reduce their production output to match the lower demand for their higher-priced goods.

If Not All Prices Adjust Instantly to Changing Economic Circumstances