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What is the primary reason inflation leads to 'menu costs' for businesses?

medium Q5 of 15
Economic Awareness - Sectors of Indian Economy
What is the primary reason inflation leads to 'menu costs' for businesses?
AIncreased cost of raw materials
BHigher wages paid to employees
CFrequent need to update prices
DGovernment taxes on price changes
Step-by-Step Solution
  1. Step 1: Define 'menu costs'

    Menu costs are the costs businesses incur when changing prices frequently due to inflation.
  2. Step 2: Analyze options

    Frequent price updates cause menu costs. Increased raw material costs and wages affect production costs but are not menu costs. Government taxes are unrelated.
  3. Final Answer:

    Frequent need to update prices → Option C
  4. Quick Check:

    Menu costs = Costs of frequent price changes ✅
Quick Trick: Think of restaurants changing menus often during inflation.
Common Mistakes:
  • Confusing menu costs with production or tax costs.
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