Answer to Question #162136 in Macroeconomics for John Dixon

Question

Question: Which of the following economic variables is considered to be fixed in the short-run?:

Answer Choices Below [1 Correct Answer] -

A. Output

B. Prices

C. Both prices and wages

D. Wages

*** Please explain and show all work. Thank you very much, will rate!

Answer 1

$$Solution$$

B . Price

 By the term fixed means it does not change that is remains constant . in this case price does not change as per demand and supply conditions in the short run. The reason behind this is that there are always chances that aggregate demand and supply do not equalize in an economy. Prices take time to respond to these conditions.

A single firm may not be in a position to influence prices as it might be contributing a very small share to the total market output. Therefore, firms might become individual price takers in the short run (like the case of perfect competition). For these reasons, in the short-run, prices remain fixed. Prices change in the long-run.