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menu costs

How much it costs to change prices. Just as a restaurant has to print a new menu when it changes the price of its food, so many other firms face a substantial outlay each time they cut or raise what they charge. Such menu costs mean that firms may be reluctant to change their prices every time there is a shift in the balance of supply and demand, so there will be sticky prices and the market for their output will be in disequilibrium. The Internet may sharply reduce menu costs as it allows prices to be changed at the click of a mouse, which may improve efficiency by keeping markets more often in equilibrium.

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