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 AGGREGATE DEMAND: The total (or aggregate) real expenditures on final goods and services produced in the domestic economy that buyers would willing and able to make at different price levels, during a given time period (usually a year). Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GDP price deflator, and aggregate expenditures on domestic production, measured by real gross domestic product. The aggregate expenditures are consumption, investment, government purchases, and net exports made by the four macroeconomic sectors (household, business, government, and foreign).
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 Lesson Contents Unit 1: Factor Markets Getting Paid Trading Resources Resources Factor Payments Circular Flow Unit 1 Summary Unit 2: Derived Demand Factor Demand A Few Issues Marginal Productivity Theory Three (Or Four) Marginals Unit 2 Summary Unit 3: The Curve Marginal Revenue Product Schedule Marginal Revenue Product Curve The Hiring Decision Factor Demand Curve Unit 3 Summary Unit 4: Determinants Shifting Demand Product Demand Factor Productivity Other Prices Unit 4 Summary Unit 5: Taking Stock Review Preview Unit 5 Summary Course Home
Factor Demand

• The first unit of this lesson, Background, begins this lesson by laying the foundations for the study of factor demand.
• In the second unit, Derived Demand, we see how the demand for a factor of production is based on the demand for the good it produces.
• The third unit, The Curve, then derives the factor demand curve, which is the relation between the price employers are willing to pay and the quantity demanded.
• In the fourth unit, Determinants, we examine the three key determinants that shift the factor demand curve -- product price, factor productivity, and other factor prices.
• The fifth and final unit, Taking Stock, then closes this lesson with a review of factor demand and a preview of factor market analysis in other lessons.

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PERFECT COMPETITION, EFFICIENCY

Perfect competition is an idealized market structure that achieves an efficient allocation of resources. This efficiency is achieved because the profit-maximizing quantity of output produced by a perfectly competitive firm results in the equality between price and marginal cost. In the short run, this involves the equality between price and short-run marginal cost. In the long run, this is seen with the equality between price and long-run marginal cost at the minimum efficient scale of production.

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 Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
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 SPOStrongly Pareto Optimal
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