Sticky Prices: Definition, Theory & Model

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Value-Based Pricing: Definition, Strategies & Example

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:01 Sticky Prices &…
  • 0:51 Short Term Aggregate Supply
  • 1:54 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed Audio mode

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Prices can be sticky, and that can explain aggregate supply in the short term in an economy. In this lesson, you'll learn about sticky price theory and how it tries to explain short term aggregate supply. A short quiz follows the lesson.

Sticky Prices and Aggregate Supply

Sticky prices are prices that do not adjust immediately to changing economic conditions.

Aggregate supply is the total quantity of goods and services produced in an economy at a particular point in time. If you plot the quantity of goods and services supplied in an economy at a particular price level and connect the dots, you'll see what is called an aggregate supply curve. In the long run, an aggregate supply curve is vertical because the quantity supplied does not depend on price level. Instead, the quantity supplied is based on the productive capacity of an economy - its labor, land, capital, and other factors of production. However, in the short run, the aggregate demand curve is upward sloping. The theory of sticky prices attempts to explain why the aggregate supply curve is upward sloping in the short run.

Short-Term Aggregate Supply

Some economists argue that the aggregate supply curve is upward sloping in the short term because of sticky prices. As we discussed, a sticky price is the tendency of the price for a certain good or service to not respond instantly to changes in the economic situation. Part of the slow response is due to menu costs, which are costs related to changing prices. Menu costs can include such things as printing costs, distribution costs, and the time and labor required to change price tags.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account