1. Arthur Okun distinguished between _____prices, which changed rapidly, and custom prices, which are slow to change.
2. For most firms, the biggest cost of doing business is _____.
3. The price system always coordinates economic activity, even when prices are slow to adjust to changes in demand and supply. _____ (True/False)
4. Determine whether the wages of each of the following adjust slowly or quickly to changes in demand and supply.
a. Union workers
b. Internationally known movie stars or rock stars
c. University professors
d. Athletes
5. The Internet and Price Flexibility. The Internet enables consumers to search for the lowest prices of various goods, such as books, music CDs, and airline tickets. Prices for these goods are likely to become more flexible as consumers shop around quickly and easily on the Internet. What types of goods and services do you think may not become more flexible because of the Internet? Give an example of a good or service for which you have searched the Internet for price information and one for which you have not.
6. Airlines and Stable Fuel Prices. Southwest Airlines made it a company policy to engage in complex financial transactions to keep the cost of fuel constant. Why would the airline want to have stable fuel prices?
7. Supermarket Prices. In a supermarket, prices for tomatoes change quickly, but prices for mops tend to not change as rapidly. Can you offer an explanation why?
8. Retail Price Stickiness in Catalogs. During periods of high inflation, retail prices in catalogs changed more frequently. Explain why this occurred.