Prices tend to be sticky because:

• A. Government regulations require all prices to change daily.
• B. Menu costs and long-term contracts make frequent price changes costly or inconvenient.
• C. Consumers prefer prices that fluctuate rapidly.
• D. Firms always adjust prices instantly in response to changes in supply and demand.

Answer: (B)

Verified step by step guidance

1. Understand the concept of price stickiness: Prices are said to be sticky when they do not adjust immediately to changes in supply and demand.
2. Identify the factors that cause prices to be sticky. These include menu costs, which are the costs firms incur when changing prices (like printing new menus or labels), and long-term contracts that fix prices for a period of time.
3. Recognize that government regulations requiring daily price changes or consumer preferences for rapid price fluctuations are not typical reasons for price stickiness.
4. Note that firms do not always adjust prices instantly because of the costs and inconveniences associated with frequent price changes.
5. Conclude that the main reason prices tend to be sticky is due to menu costs and long-term contracts making frequent price changes costly or inconvenient.