Economics

The cost of reprinting a menu can help explain a recession

Changing a price isn't free - relabelling shelves, reprinting menus, and notifying customers all cost something, even if only a little. Economist N. Gregory Mankiw showed that firms facing even tiny costs like these can rationally leave prices unchanged after demand falls, since the cost of adjusting can outweigh the private gain. Multiplied across an economy, those small, individually sensible delays make prices 'sticky' and can turn a modest drop in demand into a deeper downturn.

N. Gregory Mankiw, Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly — Quarterly Journal of Economics, 1985

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