Economics • Economic BasicsMedium
What does the 'Kinked Demand Curve' model help explain in industrial economics?
A. Rapid inflation during economic recessions
B. Price rigidity in an oligopolistic market structure✓ Correct Answer
C. The shift from consumer surplus to producer surplus
D. The relationship between tax rates and government revenue
💡 Solution & Explanation
The Kinked Demand Curve model, formulated by Paul Sweezy, explains price rigidity and sticky pricing in an oligopolistic market structure where rival firms match price cuts but ignore price increases. Alternative market models like perfect competition or pure monopoly do not feature this asymmetry in rival behavioral responses. Oligopolies are consequently characterized by stable prices despite minor cost fluctuations.
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