What does the classical model assume about wages and prices?

The classical model of economics is built on the fundamental assumption that wages and prices are always completely flexible. This flexibility implies that in response to changes in supply and demand, wages and prices can adjust freely without any restrictions.

In a classical framework, when there is an increase in demand for goods and services, prices will rise, leading to higher wages as firms compete for labor. Similarly, if there is a decrease in demand, prices and wages will fall to restore equilibrium in the market. This full flexibility is key to the classical view, which posits that the economy is naturally self-correcting and tends toward full employment and output in the long run.

The other options suggest various forms of rigidity in wage and price adjustments. However, these suggestions counter the core classical assumption and do not reflect the model accurately. Thus, recognizing that wages and prices are considered completely flexible in the classical model is crucial for understanding how this framework addresses market dynamics and adjusts to economic changes.