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Economic Definition of price flexibility. Defined.

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Term price flexibility Definition: The proposition that prices adjust in the long run in response to market shortages or surpluses. This condition is most important for long-run macroeconomic activity and long-run aggregate market analysis. Price flexibility ensures that long-run aggregate production is equal to full-employment production. In particular, changes in the price level are met by equal changes in resource prices, especially wages. A higher or lower price level might temporarily lead to an increase or decrease in real production, above or below the full employment level, but in the long run, resource prices adjust and full-employment production is maintained.

 

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