Why does price stickiness moderate over time?

Question

Multiple choice question.

Firms that choose a fixed-price policy in the short run do not have to stick with that policy in the long run.

If unexpected changes in demand seem permanent, businesses will maintain constant prices.

Firms that choose a fixed-price policy in the short run have to stick with that policy in the long run

Answer 1

The correct answer is:

Firms that choose a fixed-price policy in the short run do not have to stick with that policy in the long run.

This option explains that while prices may be sticky in the short run due to various factors such as menu costs or contracts, firms have the flexibility to adjust their pricing strategies over the long run as economic conditions change.