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INDUCED CONSUMPTION: Household consumption expenditures that depend on income or production (especially disposable, national income, or gross national product). An increase in household disposable income triggers an increase in induced consumption expenditures. Induced consumption is graphically depicted as the slope of the consumption or propensity-to-consume line, and are measured by the marginal propensity to consume. The induced relation between income and consumption, as well as other induced expenditures, form the foundation of the multiplier effect triggered by changes in autonomous expenditures.

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Lesson 14: Aggregate Supply | Unit 1: The Concept Page: 1 of 20

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In this lesson we will look at the other side of the aggregate market, the aggregate supply, to see how gross domestic product gets produced.

Society's scarce resources, with the opportunity cost of their alternative uses, must be combined to produce these goods and services.

A Definition:

  • Aggregate supply is the total, or aggregate, production of final goods and services available in the domestic economy at a range of price level, during a given time period (usually one year).
  • Similar to aggregate demand.
The goal of aggregate supply is to combine scarce resources to produce our economy's gross domestic product.
  • Four resource categories of aggregate supply:
    • Labor The people working.
    • Capital Tools and equipment.
    • Land Raw materials.
    • Entrepreneurship Those who assume the risk of production.
  • The goods and services produced are supplied to meet the demands of our households, business, government, and foreign sectors.
  • Gross production is the supply side of the aggregate market, the supply of real production, or real GDP.

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Total factor cost per unit of factor input employed by a firm in the production of output, found by dividing total factor cost by the quantity of factor input. Average factor cost, abbreviated AFC, is generally equal to the factor price. However, using the longer term average factor cost makes it easier to see the connection to related terms, including total factor cost and marginal factor cost.

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