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AD CURVE: The aggregate demand curve, which is a graphical representation of the relation between aggregate expenditures on real production and the price level, holding all ceteris paribus aggregate demand determinants constant. The aggregate demand, or AD, curve is one side of the graphical presentation of the aggregate market. The other side is occupied by the aggregate supply curve (which is actually two curves, the long-run aggregate supply curve and the short-run aggregate supply curve). The negative slope of the aggregate demand curve captures the inverse relation between aggregate expenditures on real production and the price level. This negative slope is attributable to the interest-rate effect, real-balance effect, and net-export effect.
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                           ELASTIC SUPPLY: The general supply relation in which relatively small changes in price cause relatively large changes in quantity supplied. Small changes in price cause relatively large changes in quantity supplied or the percentage change in quantity supplied is larger than the percentage change in price. This characterization of elasticity is most important for the price elasticity of supply. Elastic supply is one of two general elasticity relations for supply. The other is inelastic supply. An elastic supply relation is a very responsive, or stretchable, relation. The elastic relation is most often directed toward supply in terms of the price elasticity of supply. In this context, supply is said to be elastic if the percentage change in quantity is larger than the percentage change in price. This means that sellers are responsive to price changes.An elastic supply relation can fall into one of two categories--perfectly elastic and relatively elastic. - Perfectly Elastic: Perfectly elastic means an infinitesimally small change in price results in an infinitely large change in quantity supplied. This elasticity alternative exists when the price is fixed, that is, an infinite range of quantities is associated with the same price. This is the extreme, limiting case of elastic. Perfectly elastic supply can occur, in theory, when producers are able to switch resources among a large number of perfect substitutes-in-production.
- Relatively Elastic: Relatively elastic means that relatively small changes in price cause relatively large changes in quantity. Quantity is very responsive to price, but not infinitely so. The percentage change in quantity supplied is greater than the percentage change in price. Relatively elastic supply occurs when producers are able to switch resources among a large number of close but not perfect substitutes-in-production.
Recommended Citation:ELASTIC SUPPLY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: December 10, 2019].
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The word "fiscal" is derived from a Latin word meaning "moneybag."
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Advisory Council on Intergovernmental Relations
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