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AFC: The abbreviation for average fixed cost, which is fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Average fixed cost is one of three related cost averages. The other two are average variable cost and avarage total cost. Average fixed cost decreases with larger quantities of output. Because fixed cost is FIXED and does not change with the quantity of output, a given cost is spread more thinly per unit as quantity increases. A thousand dollars of fixed cost averages out to $10 per unit if only 100 units are produced. But if 10,000 units are produced, then the average shrinks to a mere 10 cents per unit.

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Lesson 15: Aggregate Market | Unit 2: Equilibrium Page: 7 of 22

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Equilibrium in the aggregate market occurs when the forces of aggregate demand and aggregate supply are balanced.
  • Equilibrium is a balance of forces that will remain unchanged until some other, outside force intervenes.
  • For the market, the forces are supply and demand. For the aggregate market, the forces are aggregate demand and aggregate supply.
  • The aggregate demand force is our four sectors who want GDP at the lowest price level possible.
  • The aggregate supply force is our scarce resources who want to sell GDP at the highest prices possible.

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PERFECT COMPETITION

An ideal market structure characterized by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. This is one of four basic market structures. The other three are monopoly, oligopoly, and monopolistic competition. Perfect competition is an idealized market structure that is not observed in the real world. While unrealistic, it does provide an excellent benchmark that can be used to analyze real world market structures. In particular, perfect competition efficiently allocates resources.

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APLS

RED AGGRESSERINE
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Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius wanting to buy either a key chain with a built-in flashlight and panic button or a green and yellow striped sweater vest. Be on the lookout for malfunctioning pocket calculators.
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This isn't me! What am I?

Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
"A stumble may prevent a fall. "

-- Margaret Thatcher, British prime minister

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Walrasian Equilibrium
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