Chapter 14, Problem 5MCQ

To determine

The question requires us to determine the type of cost.

Explanation of Solution

A menu cost is a real expense associated with changing a quoted price. For instance, to alter a price in a grocery shop, a clerk may need to alter the price written next to the item on the shelf and an office assistant may need to alter the price written on the store's computer. Naturally, businesses are forced to adjust prices more frequently in the face of inflation than they would be if the price level were more or less stable. The overall cost of the economy will increase as a result.

Cost of reprinting or changing the price chart when price increases are considered the menu cost of inflation.

Thus, option “c” is correct.

The other options are incorrect because:

1. The price level is not saying anything about the costs of inflation.
2. The shoe-leather cost of inflation is the cost that occur due to extra running around banks and ATMs during inflation when people attempt to avoid keeping money.

  d. The economy experiences unit-of-account costs of inflation when inflation makes money a less reliable unit of measurement.

Economics Concept Introduction

Inflation represents a general increase in the prices of goods and services in the market, and the inflation rate represents the percentage rise in the overall price level in an economy in a given period of time.

Inflation imposes economic costs on the market. The major economic costs are:

• Unit of account cost
• Shoe-leather cost, and
• Menu cost.