Principles of Macroeconomics / Unit 9 MAC 0805 short lesson, about 20 seconds
The Macroeconomic Externality
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The idea
A single firm facing weak demand should cut its price and win customers. When every firm's price is sticky at once, no such reallocation happens and the economy's output falls instead of its prices.
In practice
What is true of one firm is not true of all firms together.
Where people slip
This repeats unit eight's part-and-whole warning, now applied to prices.
Your place on the trail
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