Three famous theories that explain the sloping of the aggregate supply upwards are: the stick wage theory- lowered price levels causes employment and production to be less profitable. The problem is the fact that wages do not adjust immediately to the price level, so the firm reduces the quantity of goods and services produced. sticky- price theory- unexpected changes in price level can cause firms to have non desired prices. This causes firms to lose sales and causes a reduction in goods and services. Misperception theory- lowered price levels cause the supplier to decrease supply of goods and services when they really should not.
Work Step by Step
This question refers to the three theories of supplies. Consider the fact that wages and prices are "sticky" and understand that it takes time to adjust.