AbstractThis paper presents an exploration of the demand‐side effects of unanticipated price changes. Consumers faced with these changes may have to reoptimize their income allocation. Reoptimization is costly, and reoptimization costs result in kinked demand curves. The existence of such kinked demands provides an additional explanation of the observed nominal price rigidity. In addition, examination of unexpected nominal price changes during inflationary periods provides some justification as to why nominal price adjustments are large, infrequent and almost never downwar