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EMPIRICAL: Based on or relating to real world data or analysis. Empirical should be contrasted with the theoretical. Whereas theoretical refers to abstract representations, empirical is actual real world observations. Empirical observation is critical to the scientific method. Once an hypothesis implied by a theory, empirical observation is key to the verification process.

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Lesson 15: Aggregate Market | Unit 4: Self Correction Page: 16 of 22

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

The aggregate market, which is typically at or near short-run equilibrium, is persistently motivated to seek out the long-run equilibrium.
  • This motivation comes from an imbalance in the labor market created by rigid wages, temporarily tapping into frictional and structural unemployment, and misperceptions about the real wage.
  • The imbalance is temporary. The macroeconomy will automatically move toward long-run equilibrium and full employment.
  • Wages are flexible in the long run, but rigid in the short run. This is the key to the self-correction mechanism of the aggregate market.

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LAW OF DIMINISHING MARGINAL UTILITY

A principle stating that as the quantity of a good consumed increases, eventually each additional unit of the good provides less additional utility--that is, marginal utility decreases. Each subsequent unit of a good is valued less than the previous one. The law of diminishing marginal utility helps to explain the negative slope of the demand curve and the law of demand.

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Today, you are likely to spend a great deal of time strolling around a discount warehouse buying club trying to buy either a case of blank recordable DVDs or a pair of red goulashes with shiny buckles. Be on the lookout for defective microphones.
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The portrait on the quarter is a more accurate likeness of George Washington than that on the dollar bill.
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