The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected,then some firms believe that the relative price of what they produce has
A)decreased,so they increase production.
B)decreased,so they decrease production.
C)increased,so they increase production.
D)increased,so they decrease production.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, if the actual price level is higher than the expected price level, firms may believe that the relative price of what they produce has increased. As a result, they increase production to take advantage of the higher prices and higher profit margins. Therefore, the correct answer is C) the firms will believe that the relative price of what they produce has increased, so they will increase production.

The Misperceptions Theory of the Short-Run Aggregate Supply Curve Says