Menu Costs

Menu Costs are costs incurred to change prices. It is the cost of modifying price lists, brochures, menus and other materials when there are price changes in an economy. To avoid this transaction cost, companies do not change their prices with economic pressure- leading to price stickiness. A company thus exist in minor disequilibrium. This is done as costs of publicity generally exceed small price changes that have occurred.

Uncertain prices are not preferred by consumers. Thus changing of the product price will never be zero. It is believed that mental transaction costs are more decisive than menu costs in making price stickiness.

Substitution Swap

It is a swap that is made by trading fixed-income security in lieu of a higher-yielding bond with alike features. These two securities that are swapped generally have features like maturity dates, credit quality, coupon rates, and call features among others.

Price Tension

It is a phenomenon in which a seller of a specific service, security or good tries to maximize its selling price. The Buyer, in turn, wishes to minimize the purchase price of that security, good or service. Greater price tension leads to the bigger bid-ask spread. Price tension leads to a decrease in liquidity and the creation of price stickiness. Investors with smaller liquidity find themselves at liquidity risk. Presence of liquidity risk may cause large changes in the underlying value of a security

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