Kinked Demand Curve Simple

What this diagram shows

This is the kinked demand curve on its own, isolating the shape that underpins the Sweezy model of oligopoly. The kink sits at the firm's current price. Above the kink, demand is relatively elastic because a price rise is not matched by rivals, so the firm loses significant market share. Below the kink, demand is relatively inelastic because rivals match any price cut, so the firm gains little extra quantity for the price it sacrifices. This asymmetry is what gives the demand curve its kinked shape rather than a single straight line.

Key points

• The kink occurs at the firm's existing price, marked P* on the diagram
• Above P*, demand is elastic: rivals ignore a price rise, so the firm loses customers quickly
• Below P*, demand is inelastic: rivals match a price cut, so quantity gained is limited
• The differing gradients either side of the kink reflect these two different competitor responses
• This shape is the starting point for the full model, which adds MR and MC to explain price rigidity

Exam board notes

All major exam boards expect the same core diagram. This simplified version is useful for building the shape before layering on MR and MC, which is where AQA, Edexcel, OCR and CIE questions tend to focus their marks.