Question

Classical economics is based on the principle that prices:a. remain constant even in the face of shocks that cause excessiveunemployment.b. remain constant even in the face of shocks that cause excessiveemployment.c. adjust in a natural way to bring the markets for goods and labor intoequilibrium.d. only rise; they never fall.e. rise only if a shock occurs that causes excessive unemployment.

Answer 1

Answer:

c. adjust in a natural way to bring the markets for goods and labor intoequilibrium

Explanation:

A classical economy operates under the logic of the competitive market in which the interaction between supply and demand determines price and quantity traded. Consumers are rational and their consumption choices will depend on their needs and price. The firm, in turn, will choose to produce when the price is attractive. Thus, price acts as a vector of supply and demand adjustments. In situations of increased demand, price and supply will increase. In situations of low demand, the price decreases and the supply also, until a equilibrium. The same reasoning goes for the job market. The wage will be the adjustment price between supply and demand for work.