Which of the following explanations for the upward slope of the short-run aggregate-supply curve is correct?
A) Misperceptions
B) Sticky wages
C) Sticky prices
D) All of the above

Question

Which of the following explanations for the upward slope of the short-run aggregate-supply curve is correct? 
A) Misperceptions
B) Sticky wages
C) Sticky prices
D) All of the above

Quizplus · Accepted Answer

The upward slope of the short-run aggregate-supply curve is due to all three factors: misperceptions, sticky wages, and sticky prices. Misperceptions refer to the idea that firms may mistake changes in the overall price level for changes in the relative price of their own product. This can lead to an increase in output in response to a perceived increase in demand. Sticky wages and prices refer to the idea that wages and prices do not adjust immediately to changes in economic conditions. In the short run, this can result in firms facing higher input costs but being unable to increase their prices, leading to a decrease in profitability and a decrease in output. Overall, all three factors contribute to the upward slope of the short-run aggregate-supply curve.

Which of the Following Explanations for the Upward Slope of the Short-Run