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AMERICAN STOCK EXCHANGE: One of three national stock markets in the United States (see National Association of Securities Dealers and New York Stock Exchange) that trade ownership shares in corporations. In terms of daily stock transactions and the number of stocks listed, the American Stock Exchange is the smallest of these three. However, it's composite index of stock prices -- AMEX is considered important enough to be flashed briefly on the nightly news.

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Lesson 1: Economic Basics | Unit 3: The Economy Page: 8 of 18

Topic: A Mixed Economy: Markets and Government <=PAGE BACK | PAGE NEXT=>

Markets do an effective (and efficient) job of answering the three questions of allocation--most of the time.
  • Markets are the VOLUNTARY exchange of goods and services.
  • A pure market economy is an economy that uses nothing but markets to allocate resources.
  • A pure market economy is a useful theoretical benchmark.
Market responses to the allocation questions:
  • What? Resources are used to produce goods with the highest prices.
  • How? Goods are produced using the combination of resource with the lowest prices.
  • For Whom? People with more income buy more goods.

Government also helps answer the three questions of allocation.
  • Government allocation is INVOLUNTARY. It sets the laws and rules.
  • A pure command economy is an economy that uses nothing but government to allocate resources.
  • A pure command economy is another useful theoretical benchmark.
Government responses to the allocation questions:
  • What? When government spends taxes, it dictates what goods will be produced.
  • How? Government has laws and rules that specify how resources will be used to produce goods.
  • For Whom? Government collects taxes from some people and distributes them among other people.

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LONG-RUN AVERAGE COST CURVE, DERIVATION

The long-run average cost curve is the envelope of an infinite number of short-run average total cost curves, with each short-run average total cost curve tangent to, or just touching, the long-run average cost curve at a single point corresponding to a single output quantity. The key to the derivation of the long-run average cost curve is that each short-run average total cost curve is constructed based on a given amount of the fixed input, usually capital. As such, when the quantity of the fixed input changes, the short-run average total cost curve shifts to a new location.

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