Wednesday, June 2, 2010

Menu Costs

“Sticky prices” is something we usually discuss in macroeconomics. It tends to come up when discussing business cycles and the inability of businesses (and individuals) to instantly change prices to reflect market conditions. One of the reasons given for sticky prices is "menu costs." And while the image of a restaurant is frequently called on, it applies to any business. It takes time and resources to constantly change prices, which ends up being reflected in the costs.

Anyway, here's a cartoon that illustrates the problem quite well - even if it does use a restaurant motif.
Moderately Confused

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