Menu Costs
Updated 2026-07-31
INTRODUCTION
English translation pending.
CORE DEFINITION
The costs a firm incurs when it changes its nominal prices, including reprinting menus and catalogues, relabelling shelves, reprogramming systems and informing customers. The term comes from the literal cost of printing new restaurant menus. Individually these costs are small, but because firms weigh them against the gain from adjusting, prices change infrequently and in lumps. New Keynesian economics uses menu costs to explain nominal rigidity, which is why monetary shocks have real and persistent effects instead of being absorbed instantly by price movements.
SCAFFOLDING EFFECT
Reduce cognitive load
- Change-Cost Audit: price the act of switching before judging the new option better. - Sticky-Default Check: expect an inferior status quo to survive when switching is costly. - Reform Sequencing: bundle several changes to spread the fixed cost of adjustment.
Anchor fast decisions
Changing a price triggers a fixed cost that does not depend on the size of the change. A firm therefore adjusts only when the cumulative benefit of doing so exceeds that cost, which means small shocks produce no response at all and prices move in occasional jumps. Aggregated across many firms, this discreteness makes the general price level sluggish, so nominal shocks translate into changes in output and employment rather than into prices.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Menu_costverified
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