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Generally, the effect on the firm of small shifts in price (by changes in supply and/or demand, or else because of slight adjustments in monetary policy) are relatively minor compared to the costs of notifying the public of this new information. Therefore, the firm would rather exist in slight disequilibrium than incur the menu costs. These are called ‘menu costs’.
• With higher rates of inflation, individuals and firms may have to search more to find the best returns on their savings such as holding less cash and having to make additional trips to the bank. The costs of searching around are called ‘shoe leather costs’ which refer to the cost of time and effort (more specifically the opportunity cost of time and energy) that people spend trying to counter-act the effects of inflation...
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Common topics in this essay:
- Economical Effects Of Inflation
- Effects Of Inflation On Consumers
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