Final answer:
Prices and wages tend to be inflexible downward, known as 'sticky wages,' while being more flexible upward. This inflexibility can lead to cyclical unemployment during economic downturns.
Step-by-step explanation:
Prices and wages exhibit different levels of flexibility based on economic conditions, worker protections, and industry standards. The correct answer to the question on whether prices and wages tend to be flexible or inflexible upward and downward is D) flexible upward, but inflexible downward. The downward inflexibility, often referred to as sticky wages, occurs due to a variety of factors including minimum wage laws, labor contracts, efficiency wage theories, and the aversion to lowering wages even when market conditions might warrant it. Cyclical unemployment is a direct consequence of this wage stickiness, which can prevent labor markets from clearing during economic downturns, leading to increased unemployment.