KINKED DEMAND CURVE

GLOSSARY

KINKED DEMAND CURVE:

         It is a demand curve which illustrates price stickiness. The Sweezy’s model analyses the effects of possible reactions of the rival firms on the demand curve for the product of the firm which initiates the change in price. According to this model if one raise the price, then firm A will loose a part of its market share to the rival firms, one the other hand, if firm A reduces the price of its product, the rival firms follow the suit, then firm A does not lose or gain. The demand curve facing the firm A is now more elastic for a price rise than for a price fall. The model is used for explaining price stability in oligopolistic market.

 SHIFT OF DEMAND CURVE:

            When factors other than price change, the entire demand curve changes, it is called shift in demand curve. For example, if the income of the consumers increases, other things being equal, their demand for various goods increases and as a result the demand curve shifts to the right. On the other hand when there is a fall in the disposable income of the consumers, the demand for the goods decreases and the demand curve shifts to the left.

ORDINAL UTILITY:

         Hicks and R.G.D Allen are of the opinion that utility cannot be numerically measured. It can, however, be expressed ordinally. The consumer can rank his preferences for various combination of goods. For example, a consumer may prefer combination B or B to A or both combinations are equally preferred.

BUDGET LINE:

     Budget line depicts all combinations of two goods which can be purchased at their fixed price with a given amount of income.

CAPITAL:

      Capital is any good which used as input in the production process to produce other goods. For example, machines, car, mobile phone, building computers dams human skill etc. used to produce goods and services fall in the definition of capital.

CARDINAL UTILITY:

       According to Dr. Alfred Marshall, utility which a person obtain from the consumption of a good is measurable entity. For example, a person may get 20 units of utility from the consumption of an apple. So utility, which are just imaginary units, can be expressed in quantitative terms or in cardinal number such as 10. 15, 50, 90, 100 etc. the utility expressed in imaginary cardinal number shows the preference of a consumer for the good.

CARTEL:

         A group of producers which mutually agree to restrict competition in the market, they coordinate their output and pricing decision with the sole object of maximizing profit.

DEMAND CURVE SLOPES DOWNWARD:

              The demand curve slopes downward from left to right. It has negative slope. It shows invers relationship between the price of a good and its quantity demand. According to the law of demand when the price of good falls, its quantity demanded increases and vice versa other things remaining the same. It is the application of this law of demand that the demand curve slopes downward from left to the right.