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Tue 24 Feb, 2015 07:37 am
I am preparing for a class and I am having difficulty answering my own question. In Macro we assume that in the "immediate short run" prices are fixed and even in the "short run" prices don't change for all firms. The reasoning is that firms set prices and will supply however many or few goods customers want to buy at the set price. This seems like a contradiction to the idea set in Micro that firms respond to the market by changing prices. Both are looking at individual firms (though I don't really think the Macro part should be) and I am having a hard time reasoning through why a firm in Micro would change the price, but when we get to Macro teachers say, "Well, prices are sticky..."
Any help to circle the square?