The demand curve of the oligopolist has a kink at point E in figure 916 reflecting the following behavioural pattern.

Example of kinked demand curve. A kinked demand curve occurs when the demand curve is not a straight line but has a different elasticity for higher and lower prices. P a -bQ a intercept where price is 0. At a price higher than the prevailing market price a firm faces a more elastic demand curve but at a price below the prevailing market price the demand curve is relatively less elastic.

Example of a kinked demand curve in practice One possibility is the market for petrol. This model of oligopoly suggests that prices are rigid and that firms will face different effects for both increasing price or decreasing price. Also the upper segment dP of the demand curve dD is elastic.

In the short-term the price will remain the same and the quantity sold will increase. Thus the cocaine demand curve is a kinked demand curve example. Classical economic theory assumes that a profit-maximizing.

B slope of demand curve. A kinked demand curve is composed effectively of two demand curves which meet at the prevailing market price. A kinked demand curve occurs when the demand curve is not a straight line but has a different elasticity for higher and lower prices.

The model is incomplete since it is not tell us what explains where the kink will be. From the figure we know that. When the demand curve shifts it changes the amount purchased at every price point.

For example when incomes rise people can buy more of everything they want. One example of a kinked demand curve is. Theory Kinked demand curves and traditional demand curves are similar in that they are both downward-sloping.