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Unformatted text preview: the value X in year one and then fail to adjust to the real value that arises in year two as a result of inflation. Say inflation in the Us economy is 2% across the board and this firm in the private sector either fails to adjust to these real term or only consider the nominal values resulting in a loss for the firm. This failure to adjust is extremely costly to the firm and could no doubt result in a permanent closing of the business. Such an instance although unlikely, based on the financial importance of this decision for the firm, can be found based on certain circumstances that prohibit the firm from properly recognizing the inflated economy. Another situation in which price illusion could arise in the private sector would be when company is selling either goods or services to a consumer...
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- Spring '11