ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Prices and wages tend to be: flexible upward, but inflexible downward. A change in business taxes and regulation can affect production costs and aggregate supply. In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves.

Detailed explanation-2: -Wage flexibility stabilizes fluctuations in real output and guarantees workers a higher real standard of living in response to aggregate demand shocks. Wage flexibility in response to energy price shocks guarantees workers higher real wages without exacerbating price inflation or output contraction.

Detailed explanation-3: -INFLEXIBLE PRICES: The proposition that some prices adjust slowly in response to market shortages or surpluses. This condition is most important for macroeconomic activity in the short run and short-run aggregate market analysis.

Detailed explanation-4: -What is the difference between sticky prices and flexible prices? Sticky prices are often triggered by an impediment or a change in cost and cannot fluctuate easily. On the other hand, flexible prices are more susceptible to change as they adapt to market conditions.

Detailed explanation-5: -During tough economic times, for example, an employer that has high flexibility can cut wages and increase the number of hours that employees are expected to work to boost productivity. Conversely, when the economy is strong, the same employer may decide to give employees a slight raise and cut back on their hours.