Kinked Demand Curve

Kinked Demand Curve

• Kinked Demand - When the demand curve changes angles.
• If firm A raises their price, the other firms will not follow so consumers will all switch to the competitors. So if firm A raises their price, the demand is

  elastic

  ---

  . In the diagram below this would be any price

  higher

  ---

  than $25.
• If firm A cuts their price, other firms will also cut price so they will not gain a lot of extra customers. When they cut the price, the demand is

  inelastic

  ---

  . In the diagram below this would be any price

  lower

  ---

  than $25.