March 17, 2018 

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INDUSTRY: A collection of firms that produce similar products sold in the same market. The concept of industry is most often used synonymously with market in most microeconomic analysis. That is, the study of perfect competition or oligopoly is not only the study of market structures, but also the study of industrial structure.

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Lesson 13: Aggregate Demand | Unit 2: Doing More Page: 7 of 22

Topic: Government Purchases <=PAGE BACK | PAGE NEXT=>

The government sector, like the household and business sectors, buys a portion of the final goods and services produced by the economy. These are government purchases.

Two points:

  • We study government purchases made by all three levels: federal, state, and local. But the federal level will occupy much of our interest.
  • We study government spending only for newly produced goods. We exclude government spending on transfer payments.

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The decrease in the sum of consumer surplus and producer surplus that results from the imposition of a tax. When a tax drives a wedge between demand price and supply price it disrupts what otherwise would be an efficient market equilibrium. Inefficiency arises because while a portion of the sum of consumer and producer surplus is merely transferred to government, a portion of this sum also disappears. The part that disappears is the deadweight loss and is an indicator of the inefficiency of the tax.

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Today, you are likely to spend a great deal of time at an auction hoping to buy either storage boxes for your winter clothes or several magazines on time travel. Be on the lookout for the happiest person in the room.
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