Please give a detailed explanation for your answer. Hopefully its correct.
Homework Answers
Misperception theory of the short-run aggregate supply indicates
that change in relative price induces producers to adjust quantity
supplied.
Producers does not exactly knows the real price level. So, they form expectation about the price level.
If actual price level turns out to be higher than expected price level then producers believe that relative price of good has increased and thus increases the quantity supplied.
On the other hand, if actual price level turns out to be lower than expected price level then producers believe that relative price of good has decreased and thus decreases the quantity supplied.
So,
The quantity of output supplied will increase if the price level increases by more than expected so that firms believe the relative price of their output has increased.
Hence, the correct answer is the option (C).
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Please give a detailed explanation for your answer. Hopefully
its correct.
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