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A PRIORI: A presumption made before an analysis is undertaken, often based on experiences, beliefs, or deductions from seemingly self-evident propositions about how the world works. This is a Latin for assumption or axiom. A similar sounding, but opposite term is a posteriori, which is derived from observation or facts. For example, in the study of economics of crime you might assume, a priori, that people are basically "good", because that just seems to be part of human nature, and conclude, a posteriori, that people are more likely to commit crimes when the threat of capture and conviction is lower.

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Lesson 7: Market | Unit 1: The Exchange Page: 2 of 22

Topic: Equilibrium <=PAGE BACK | PAGE NEXT=>

Equilibrium is the balance of opposing forces that remains unchanged until another force intervenes.

For example:

If two people are pushing in opposite ways on a swinging door with equal strength, then neither will be able to go through. Each pusher represents an opposing force.

For a market, the opposing forces are:

  • Demand. Buyers want to pay a lower price.
  • Supply. Sellers want to receive a higher price.
Market equilibrium is indicated by equilibrium quantity and equilibrium price.
  • Equilibrium quantity is the quantity of a good traded among buyers and sellers when a market is in equilibrium.
  • Equilibrium price is the price agreed to by buyers and sellers when a market is in equilibrium.
  • Buyers and sellers will continue to trade the equilibrium quantity at the equilibrium price indefinitely.
  • But, the equilibrium quantity and price can be disrupted by ceteris paribus determinants of demand and supply. Analyzing these disruptions help us understand economic events.

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MARGINAL PROPENSITY TO IMPORT

The change in imports purchased from the foreign induced by a change in income or production (national income or gross domestic product). The marginal propensity to import (abbreviated MPM) is another term for the slope of the imports line and is calculated as the change in imports divided by the change in income or production. The MPM plays a role in Keynesian economics. It augments the slope of the aggregate expenditures line and is part to the multiplier process. A related marginal measure is the marginal propensity to consume.

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Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors hoping to buy either a coffee table shaped like the state of Florida or storage boxes for your summer clothes. Be on the lookout for strangers with large satchels of used undergarments.
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The average length of a "business lunch" is about 36 minutes.
"When I look back on all these worries, I remember the story of the old man who said on his deathbed that he had had a lot of trouble in his life, most of which had never happened. "

-- Winston Churchill, British statesman

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