March 19, 2018 

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KINKED-DEMAND CURVE: A demand curve with two distinct segments with different elasticities that join to form a kink. The primary use of the kinked-demand curve is to explain price rigidity in oligopoly. The two segments are: (1) a relatively more elastic segment for price increases and (2) a relatively less elastic segment for price decreases. The relative elasticities of these two segments is directly based on the interdependent decision-making of oligopolistic firms.

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Lesson 15: Aggregate Market | Unit 3: Doing Curves Page: 14 of 22

Topic: Short-Run Equilibrium <=PAGE BACK | PAGE NEXT=>

Let's identify short-run equilibrium.
  • The negatively-sloped aggregate demand curve, is labeled AD. This curve is the same as in the long run.
  • The SRAS curve is the positively-sloped short-run aggregate supply curve.
  • The short-run aggregate market equilibrium at the intersection of the two curves.
At this short-run equilibrium:
  • The quantities of real production demanded and supplied are equal, buyers and sellers are satisfied, and the price level doesn't change.
  • But, we don't know where full employment is located. This equilibrium might involve a surplus or a shortage in the labor market.

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The notion that business cycles are caused by changes in business sector investment expenditures triggered by the natural ebb and flow of market conditions. This investment explanation of business-cycle instability rests on the proposition that the seeds of each subsequent business-cycle phase are planted during the current phase. An expansion creates the conditions that cause a contraction and a contraction creates the conditions that cause an expansion. This explanation suggests a critical role for government intervention and stabilization policies to correct the business-cycle problems of inflation and unemployment.

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Today, you are likely to spend a great deal of time at a flea market looking to buy either a wall poster commemorating the 2000 Olympics or a flower arrangement with a lot of roses for your grandmother. Be on the lookout for the happiest person in the room.
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On a typical day, the United States Mint produces over $1 million worth of dimes.
"Whatever course you decide upon, there is always someone to tell you that you are wrong. There are always difficulties arising which tempt you to believe that your critics are right. To map out a course of action and follow it to an end requires...courage."

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