Behavioral evidence for sticky price theory
2007-09-07 · Original WordPress address
If we lived in paradise, firms could update their prices instantaneously with the blowing, turbulent winds of demand. In paradise, fundamentals --- the skills of workers and availability of inputs to production --- would drive variation of incomes and if we were in an especially happy paradise, increases in efficiency would overwhelm any occasional negative supply shock.
But no. We do not live in paradise. Prices are sticky and aggregate supply curves slope upwards.
Why? Because of those damned Apple fanatics! I have always hated them and now Tyler Cowen is especially mad:
OK, people, it's no more Mr. Nice Guy. I'm fed up! No more moderation, no more namby-pamby conciliations to those I disagree with, at least not today. I am plain, hopping mad. And who has pushed me over the edge?...
iPhone early adopters. (I'm one of them, though a virtuous one.) You may have heard, they just cut the price on iPhones... It is you people, you who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don't know what it means to sit back and enjoy your consumer surplus. You beasts!
Tyler, in a comment, says "p.s. I'm not mad anymore". But I, a true believer in Real Business Cycles, am still hopping mad.