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MARGINAL REVENUE CURVE, MONOPOLISTIC COMPETITION: A curve that graphically represents the relation between marginal revenue received by a monopolistically competitive firm for selling its output and the quantity of output sold. The marginal revenue curve reflects the degree of market control held by a firm. For a monopolistically competitive firm with some market control, but not a whole lot, the marginal revenue curve is negatively-sloped but relatively elastic.

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Lesson 16: Aggregate Shocks | Unit 2: Extension Page: 5 of 21

Topic: Self-Correction <=PAGE BACK | PAGE NEXT=>

The aggregate market has a perpetual inclination to adjust from short-run equilibrium to long-run equilibrium.
  • The aggregate market self-correction mechanism relies on wages, the key production cost determinant.
  • Short-run labor market imbalances induce wage changes that move the aggregate market to long-run equilibrium.

A recessionary gap Unemployment causes lower wages and production costs, and an increase in short-run aggregate supply.

An inflationary gap Labor market imbalances increase wages and production cost, and decrease in short-run aggregate supply.

Long run equilibrium is restored in both cases.


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AUTOMATIC STABILIZERS

Taxes and transfer payments that depend on the level of aggregate production and income such that they automatically dampen business-cycle instability without the need for discretionary policy action. Automatic stabilizers are a form of nondiscretionary fiscal policy that do not require explicit action by the government sector to address the ups and downs of the business cycle and the problems of unemployment and inflation.

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Today, you are likely to spend a great deal of time flipping through mail order catalogs looking to buy either a battery-powered, rechargeable vacuum cleaner or a remote controlled World War I bi-plane. Be on the lookout for crowded shopping malls.
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Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
"Whenever you fall, pick up something. "

-- Oswald Avery, scientist

BOP
Balance of Payments
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