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Economics

Price Stickiness and Menu Costs in New Keynesian Models

Quick fact

The term 'menu costs' literally refers to the cost of printing new restaurant menus, but it's a metaphor for any cost a firm incurs to change prices—like updating price tags, websites, or catalogs. These tiny costs can create large economic effects, as shown by Nobel Prize-winning economist N. Gregory Mankiw.

Why this is interesting

Have you ever noticed that the price of a candy bar stays the same for years, even when the cost of ingredients goes up? Why would a firm leave money on the table by not adjusting prices immediately?