PRICE AND QUANTITY ADJUSTMENT OVER THE BUSINESS-CYCLE - EVIDENCE FROM SURVEY DATA

This paper analyses responses to an administered questionnaire in which owner managers of 73 small firms were asked how they would respond to booms and recessions. Responses suggest that quantity adjustments to demand fluctuations are more important than price adjustments. There is also evidence that downward price adjustments are more likely in recessions than are upward price changes in booms, but this asymmetry is absent in firms with cash flow problems. This tallies with the predictions of a recent customer markets model. However, the asymmetry in quantity adjustments appears to move in the opposite direction, with more adjustments taking place in booms.