March 19, 2018 

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MARKET ANALYSIS: The use of the market model to examine economic phenomenon involving demand, supply, prices, and exchanges. The simplest market analysis involves identifying equilibrium price and quantity, which is the point of intersection between the demand and supply curves. Some of the more useful market analysis, however, involves comparative static analysis of shifts in either the demand or supply curves, or both curves simultaneously. Other market analysis examines the consequences of price ceilings, price floors, and taxes.

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Lesson 16: Aggregate Shocks | Unit 3: Basic Shifts Page: 11 of 21

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

The short-run equilibrium is given by the intersection of the negatively sloped AD curve and the positively-sloped SRAS.
  • A decrease in AD and results in a new short-run equilibrium.
  • At the new equilibrium, both real production and the price level decrease.
  • Real production can decrease below full employment -- in the short run.
  • This shift gives us an intermediate point from one long-run equilibrium to another.

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The general relation between two variables in which relatively large changes in one variable (A) cause relatively small changes in another variable (B). In other words, large changes in variable A cause relatively small changes in variable B or the percentage change in variable B is smaller than the percentage change in variable A. This characterization of elasticity is most important for the price elasticity of demand and the price elasticity of supply. Inelastic is one of two general elasticity relations between two variables. The other is elastic.

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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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The New York Stock Exchange was established by a group of investors in New York City in 1817 under a buttonwood tree at the end of a little road named Wall Street.
"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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