Price Stickiness

Price stickiness refers to the tendency of prices for goods and services to remain relatively stable despite changes in supply and demand or overall economic conditions. Businesses often avoid frequently changing prices to maintain customer trust, reduce menu costs, or because of contracts and regulations. As a result, prices may not adjust immediately to economic shifts, leading to temporary imbalances in the market. This inertia can influence how quickly an economy responds to shocks, sometimes causing price levels to stay fixed in the short term even when market conditions change.