Question

The menu cost reasoning for sticky prices includes which of the following concepts

		changing prices can be costly
		the costs of changing prices will vary between businesses
		because the costs and benefits of changing prices will vary between firms, different firms will change their prices at different times
		all of the above

Using the CPI data from 1988-2009, the category of consumer goods that changes prices most frequently is

		medical care
		recreation
		raw goods
		education and communication

More durable goods tend to change prices

		more frequently than non-durable goods
		about as frequently as non-durable goods
		unpredictably
		less frequently than non-durable goods

A study from the Billion Prices Projects studied goods that are sold both in-store by Wal-Mart and online by Amazon. The study found that

		the prices of goods sold both in-store and online change price more frequently than goods sold only in-store
		there was no difference in the frequency of price changes between goods sold both in-store and online change relative to goods sold only in-store
		the prices of goods sold only in-store changed price more frequently than goods sold both in-store and online
		more goods were sold in-store than online

Answer 1

As we know that, a menu cost is the cost to a firm resulting from changing its prices. The name stems from the cost of restaurants literally printing new menus, but economists use it to refer to the costs of changing nominal prices in general. Menu costs differ because costs and benefits of changing prices will vary between firms, different firms will change their prices at different time.

1). The correct option is (d).

All of the above.

2). The correct option is (a).

Medical care.

Consumer price index measures the changes in price of the consumer goods. During the period of 1988-2009 the price changes most for the medical care near about 4.9%.

3). The correct option is (a).

More frequently than non durable goods.

As we know that, Demand for durable goods is more volatile than the demand for non-durable goods. Price elasticity of demand for durable goods is generally more elastic. That is, quantity demanded is more sensitive to price changes of such durable goods in short run and not so much in the long run.

4). The correct option is (c).

the prices of goods sold only in-store changed price more frequently than goods sold both in-store and online.

Hope you got the answer.

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Thanks!