Prices not always flexible in the short run from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
In the short run, businesses may not always have the flexibility to adjust their prices in response to changes in demand. This lack of flexibility can lead to imbalances in the economy, resulting in fluctuations in output and employment levels. When demand for a good or service suddenly drops, businesses may find themselves with excess inventory that they are unable to sell at the current price. In this situation, firms may be reluctant to lower prices in order to clear out their inventory, as doing so could lead to lower revenue and potentially lower profits. Similarly, if demand suddenly increases, businesses may not be able to quickly ramp up production to meet this increased demand. In this case, firms may choose to keep prices stable or even raise them in order to take advantage of the higher demand and increase their profits. These rigidities in pricing can have real economic consequences. When businesses are unable to adjust prices in response to changes in demand, they may be forced to make other adjustments, such as laying off workers or reducing production. This can lead to higher unemployment and lower overall output in the economy.- The concept of prices not always being flexible in the short run is an important one to consider when analyzing economic fluctuations. By understanding the limitations that businesses face in adjusting prices, we can better understand the factors that influence output, employment, and overall economic stability.
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