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EXCESS CAPACITY: A condition that exists when monopolistic competition achieves long-run equilibrium such that production by each firm is less than minimum efficient scale. The implication of this condition is that each firm is not producing up to its fullest capacity, as would be the case under perfect competition, and thus more firms are need to produce total market output compared to perfect competition. Excess capacity results because market control means a monopolistically competitive firm faces a negatively-sloped demand curve. Long-run equilibrium is thus achieved by the tangency of the negatively-sloped demand curve and the long-run average cost curve, which results in economies to scale.

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Lesson 9: Macro Basics | Unit 2: Macro Problems Page: 5 of 16

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

Unemployment exists when resources, specially labor, are willing and able to produce goods but are not employed because no one is buying production.
  • Voluntary unemployment occurs when people choose not to work.
  • Involuntary unemployment occurs when people are willing to work, but can't find employment.
Unemployment problems:
  • The economy suffers because unemployed resources are not producing goods to lessen the scarcity problem.
  • The unemployed suffer personal hardships and a lower living standard.
Production lost from unemployed resources can never be recouped.

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OUTPUT GAPS

Recessionary and inflationary gaps created by differences between equilibrium real production achieved by the short-run aggregate market and full-employment real production. A recessionary gap occurs if short-run equilibrium real production is less than full-employment real production. An inflationary gap results if short-run real equilibrium production is greater than full-employment real production.

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Today, you are likely to spend a great deal of time at a garage sale hoping to buy either a package of blank rewritable CDs or yellow cotton balls. Be on the lookout for defective microphones.
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
"If things are not going well with you, begin your effort at correcting the situation by carefully examining the service you are rendering, and especially the spirit in which you are rendering it."

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Autoregressive Conditional Heteroskedasticity
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