Social Sciences and History / Unit 15 SSH 1416 short lesson, about 20 seconds
Menu Costs and the Coordination Argument
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The idea
Menu costs are what firms face in changing prices: relabeling, records, and telling customers. The coordination argument holds that downward wage and price flexibility would require perfect information about what lower pay others would accept, which no one has, so firms' upward-sloping supply curves become a flat aggregate supply curve.
In practice
Nobody cuts first.
Where people slip
Both explain stickiness; neither requires irrationality.
Your place on the trail
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