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MARGINAL FACTOR COST AND AVERAGE FACTOR COST: The relation between marginal factor cost and average factor cost is comparable to other average-marginal relations found in the study of economics. For a firm that hires factors in a perfectly competitive factor market, marginal factor cost and average factor cost are equal, and equal to the factor market price. All three are represented by a horizontal, or perfectly elastic, curve equal to the factor market price. For a firm that hires factors in an imperfectly competitive factor market, especially monopsony, marginal factor cost is greater than both average factor cost and the factor market price.

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Lesson Contents
Unit 1: The Concept
  • Stretchability
  • Responsiveness
  • Quantity Changes
  • Some Definitions
  • Unit 1 Summary
  • Unit 2: A Little More
  • Two Categories
  • Why Study: Market Shocks
  • Why Study: Taxes
  • Why Study: Price Controls
  • Unit 2 Summary
  • Unit 3: Measurement
  • Two Types
  • The Coefficient
  • Doing The Numbers: Endpoint
  • Doing The Numbers: Midpoint
  • Unit 3 Summary
  • Unit 4: A Continuum
  • Elasticity Alternatives
  • Perfectly Elastic
  • Relative Elastic
  • Perfectly Inelastic
  • Relatively Inelastic
  • Unit 4 Summary
  • Unit 5: Market Elasticity
  • Four Measures
  • Elasticity Determinants
  • Unit 5 Summary
  • Course Home
    Elasticity Basics

    In this lesson, we will examine the basics of elasticity, including what it is, how it is measured, and how it is used in market analysis.

    • The first unit of this lesson, The Concept, introduces the elasticity concept and previews its role in market analysis.
    • In the second unit, A Little More, examines the importance of elasticity for such topics as market shocks, taxes, and price controls.
    • The third unit, Measurement, takes a close look at how elasticity is measured, focusing on the coefficient of elasticity.
    • The fourth unit, A Continuum, examines the five categories of elasticity, ranging from elastic to inelastic, that form a continuum.
    • The fifth unit and final unit, Market Elasticity, closes this lesson by introducing four key elasticity concepts for the market demand and supply.

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    GOVERNMENT PURCHASES

    Expenditures made by the government sector on final goods and services, or gross domestic product. Government purchases are used to buy the goods and services needed to operate the government (such as administrative salaries) and to provide public goods (including national defense, highway construction). These purchases are one of two major categories of government spending, the other is transfer payments. Government purchases are financed by a mix of taxes and borrowing and are categorized by the three levels of government: federal, state, and local governments. These are one of four expenditures on gross domestic product. The other three are consumption expenditures, investment expenditures, and net exports.

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    APLS

    BEIGE MUNDORTLE
    [What's This?]

    Today, you are likely to spend a great deal of time looking for a downtown retail store trying to buy either an AC adapter for your CD player or storage boxes for your family photos. Be on the lookout for rusty deck screws.
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    This isn't me! What am I?

    It's estimated that the U.S. economy has about $20 million of counterfeit currency in circulation, less than 0.001 perecent of the total legal currency.
    "When the solution is simple, God is answering."

    -- Albert Einstein

    PTA
    Preferential Trade Agreement
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