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OPPORTUNITY COST: The highest valued alternative foregone in the pursuit of an activity. This is a hallmark of anything dealing with economics--and life for that matter--because any action that you take prevents you from doing something else. The ultimate source of opportunity cost is the pervasive problem of scarcity (unlimited wants and needs, but limited resources). Whenever limited resources are used to satisfy one want or need, there are an unlimited number of other wants and needs that remain unsatisfied. Herein lies the essence of opportunity cost. Doing one thing prevents doing another.

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Lesson 16: Aggregate Shocks | Unit 3: Basic Shifts Page: 9 of 21

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

The long-run equilibrium is given by the intersection of the negatively-sloped AD curve and the vertical LRAS.
  • A decrease in AD results in a new long-run equilibrium.
  • At the new equilibrium, real production does not change, it stays at Qf. The price level decreases from Po to P2.
  • We're still missing a lot of short-run action that occurs as we go from one long-run equilibrium to another.

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SHORTAGE

A condition in the market in which the quantity demanded is greater than the quantity supplied at the existing price. Because buyers are unable to buy as much of the good as they want, a shortage generally causes an increase in the market price, which then acts to restore equilibrium. A shortage, which also goes by the terms excess demand and sellers' market, is one of two basic states of disequilibrium for the market. The other is surplus.

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APLS

GREEN LOGIGUIN
[What's This?]

Today, you are likely to spend a great deal of time surfing the Internet looking to buy either a remote controlled World War I bi-plane or a wall poster commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki. Be on the lookout for deranged pelicans.
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This isn't me! What am I?

General Electric is the only stock from the original 1896 Dow Jones Industrial Average remaining in the current index.
"Act well at the moment, and you have performed a good action for all eternity."

-- Johann Kaspar Lavater

LCH
Life Cycle Hypothesis
A PEDestrian's Guide
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