Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383



Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Can a person believe that wages are inflexible downward for, say, one year and also believe in a self-regulating economy? Explain your answer.

To determine

Wage inflexibility downward and the self-regulating economy.


According to the classical economists, the economy is always self regulating and does not need any intervention of the government to control its activities other than providing the military support. Thus, they demanded the Laissez Faire economy where the economic transactions of the economy are free from the government regulations, tariffs, and interventions. Thus, the wages and prices are the main factors that change and adjust the economy back into the equilibrium.

There is a wage rigidity downward in the economy and it is due to various reasons such as the presence of the labor unions as well as the long term contracts between the employees and the employers that determine the wage for the next one or two years...

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