In A Kinked Demand Curve
Economics notes
In A Kinked Demand Curve
➡️ A decrease in price will lead to an increase in quantity demanded. This is because a lower price makes the good more affordable and attractive to consumers.
➡️ An increase in price will lead to a decrease in quantity demanded. This is because a higher price makes the good less affordable and less attractive to consumers.
➡️ The demand curve reflects the relationship between price and quantity demanded, and shows how changes in price affect the quantity of a good that consumers are willing to purchase.
What is a kinked demand curve?
A kinked demand curve is a type of demand curve that is characterized by a sharp change in the slope of the curve at a certain price point. This occurs when a price increase causes a large decrease in demand, while a price decrease causes only a small increase in demand. This is due to the fact that firms are reluctant to lower prices below the current market price, as it may lead to a price war.
What are the implications of a kinked demand curve?
The implications of a kinked demand curve are that firms have less incentive to lower prices, as it may lead to a price war. This means that firms are more likely to keep prices at the current market price, leading to higher prices and less competition. Additionally, firms may be less likely to increase prices, as it may lead to a large decrease in demand.
How can firms use a kinked demand curve to their advantage?
Firms can use a kinked demand curve to their advantage by setting prices at the kinked point. This will allow them to maximize their profits, as they will be able to capture the higher prices without having to worry about a large decrease in demand. Additionally, firms can use the kinked demand curve to their advantage by setting prices slightly below the kinked point, as this will allow them to capture some of the higher prices without having to worry about a large decrease in demand.