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A-Level Economics · Kinked demand (oligopoly) diagram question
Why is demand INELASTIC below the kink?
The diagram
The answer
If the firm cuts its price, rivals match the cut immediately — so it gains very few extra customers and just earns less on every unit. They match you within the hour. You keep roughly the same customers and earn less on each — so cutting is unattractive too. Both directions lose: the price sticks. A price cut steals customers, so rivals cannot afford to ignore it — they match it at once. Quantity therefore barely responds to your cut: inelastic, drawn steep. Put the two halves together and the firm has no reason to move price in either direction.
Test yourself properly
This is one of 6 questions on the kinked demand (oligopoly) diagram — every corner lettered, every wrong answer diagnosed.
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