INFLATIONARY GAP: The difference between the equilibrium real production achieved in the short-run aggregate market and full-employment real production the occurs when short-run equilibrium real production is more than full-employment real production. An inflationary gap, also termed an expansionary gap, is associated with a business-cycle expansion, especially the latter stages of an expansion. This is one of two alternative output gaps that can occur when short-run production differs from full employment. The other is a recessionary gap.

     See also | aggregate market | short-run aggregate market | full employment | full-employment real production | real production | expansionary gap | recessionary gap | business cycle | inflation | expansion | self correction |

INFLATIONARY GAP, AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: November 29, 2023].

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A monopolistically competitive firm generally produces less output and charges a higher price than would be the case for a perfectly competitive firm. In particular, the price charged by a monopolistically competitive firm is higher than the marginal cost of production, which violates the efficiency condition that price equals marginal cost. A monopolistically competitive firm is inefficient because it has market control and faces a negatively-sloped demand curve.

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