Price Rigidity

Price rigidity refers to the tendency of prices to remain stable even when market conditions change. This means that prices of goods and services don’t always adjust immediately in response to factors like supply, demand, or inflation. Often, businesses and consumers prefer to keep prices steady to avoid confusion, maintain customer relationships, or due to menu costs—expenses related to changing prices. As a result, prices can stay "sticky" in the short term, which can influence economic activity and lead to periods of economic imbalance until adjustments eventually occur.