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HOW?: One of three basic questions of allocation (What? and For Whom? are the other two). Answering the "How?" question of allocation determines how society's limited resources will be combined in the production goods. Do we produce houses with wood or bricks? Do we make cars with automated robots or human labor?

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Lesson 20: Oligopoly | Unit 4: Analysis Page: 15 of 24

Topic: Kinked-Demand Curve <=PAGE BACK | PAGE NEXT=>

  • How and why oligopoly firms have rigid prices can be illustrated with the use of the kinked-demand curve.

  • A kinked-demand curve is a demand curve with two distinct segments with different elasticities that join to form a kink.
  • The two segments of a kinked-demand curve are:

    1. A relatively more elastic segment for price increases.
    2. A relatively less elastic segment for price decreases.

  • The most striking feature of this curve is that it comes it three parts:

    • One part corresponds with the relatively more elastic demand curve for price increases.

    • The second part corresponds with the relatively less elastic demand curve for price decreases.

    • The third part is the vertical line connecting these two segments.

  • This disjointed marginal revenue curve is the key to oligopoly price rigidity.

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AGGREGATE DEMAND DETERMINANTS

An assortment of ceteris paribus factors other than the price level that affect aggregate demand, but which are assumed constant when the aggregate demand curve is constructed. Changes in any of the aggregate demand determinants cause the aggregate demand curve to shift. The specific ceteris paribus factors are commonly grouped by the four, broad expenditure categories--consumption expenditures, investment expenditures, government purchases, and net exports.

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Today, you are likely to spend a great deal of time looking for a downtown retail store wanting to buy either a coffee cup commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki or a rechargeable battery for your cell phone. Be on the lookout for door-to-door salesmen.
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In the late 1800s and early 1900s, almost 2 million children were employed as factory workers.
"Good judgment comes from experience, and often experience comes from bad judgment."

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