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 KINKED-DEMAND CURVE: A demand curve with two distinct segments with different elasticities that join to form a kink. The primary use of the kinked-demand curve is to explain price rigidity in oligopoly. The two segments are: (1) a relatively more elastic segment for price increases and (2) a relatively less elastic segment for price decreases. The relative elasticities of these two segments is directly based on the interdependent decision-making of oligopolistic firms.
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 Lesson 8: Market Shocks | Unit 4: Double Shifts Page: 15 of 20

 Topic: Less Demand and Less Supply <=PAGE BACK | PAGE NEXT=>

Here we have demand decreasing (tastes change) and supply decreasing (number of sellers declines).
• A decrease in demand causes a decrease in both price and quantity.
• A decrease supply causes price to increase and quantity to decrease.
• The combined effect is an obvious decrease in quantity but a questionable change in price.
• At the new equilibrium the price is indeterminant.
• If both demand and supply curve shift in the same direction, then quantity also changes in that direction, but price is indeterminant.

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INELASTIC DEMAND

The general elasticity relation in which relatively large changes in price cause relatively small changes in quantity demanded. Large changes in price cause relatively small changes in quantity demanded or the percentage change in quantity demanded is smaller than the percentage change in price. This characterization of elasticity is most important for the price elasticity of demand. Inelastic demand is one of two general elasticity relations for demand. The other is elastic demand.

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 A half gallon milk jug holds about \$50 in pennies.
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