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AGGREGATE DEMAND: The total (or aggregate) real expenditures on final goods and services produced in the domestic economy that buyers would willing and able to make at different price levels, during a given time period (usually a year). Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GDP price deflator, and aggregate expenditures on domestic production, measured by real gross domestic product. The aggregate expenditures are consumption, investment, government purchases, and net exports made by the four macroeconomic sectors (household, business, government, and foreign).

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Lesson Contents
Unit 1: The Exchange
  • What It Is
  • Equilibrium
  • Competition
  • Number
  • Unit 1 Summary
  • Unit 2: The Numbers
  • Schedule
  • Market Agreement
  • Equilibrium
  • Unit 2 Summary
  • Unit 3: A Graph
  • The Curves
  • The Equilibrium
  • Unit 3 Summary
  • Unit 4: Adjustment
  • Self-Correction
  • Shortage
  • Surplus
  • Unit 4 Summary
  • Unit 5: Efficiency
  • What It Is
  • Efficient Markets
  • Too Little Production
  • Too Much Production
  • Inefficiency
  • Unit 5 Summary
  • Course Home
    Market Equilibrium

    In this lesson, we'll see how buyers (discussed in the demand lesson) come together with sellers (discussed in the supply lesson) to exchange commodities using a market. More precisely, this lesson develops an abstract market model, or market analysis, that we can use to explain and understand a wide range of real world exchanges.

    • This lesson begins in the first unit, The Exchange, with an overview of the basic exchange process underlying markets, including the notion of equilibrium, the roles played by price and quantity, and the importance of competition.
    • In the second unit, The Numbers, we work through a simple market analysis using demand and supply schedules, highlight both equilibrium and disequilibrium conditions.
    • The third unit, A Graph, then carefully examines the notion of market equilibrium using demand and supply curves, which generates the widely used graphical model of the market.
    • Moving onto the fourth unit, Adjustment, we use the graphical market model to investigate the automatic market responses to shortages and surpluses.
    • The lesson concludes in the fifth unit, Efficiency, by considering the relation between market exchanges and efficiency.

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    SLOPE, CONSUMPTION LINE

    The positive slope of the consumption line is also termed the marginal propensity to consume (MPC). This slope is greater than zero but less than one, reflecting induced consumption and the Keynesian psychological law of consumer behavior that consumption increases by less than the increase in income. The slope of the consumption line provides the foundation for the slope of the aggregate expenditures line and thus also affects the magnitude of the multiplier process.

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    APLS

    GRAY SKITTERY
    [What's This?]

    Today, you are likely to spend a great deal of time strolling through a department store hoping to buy either throw pillows for your bed or a package of blank rewritable CDs. Be on the lookout for small children selling products door-to-door.
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    This isn't me! What am I?

    In 1914, Ford paid workers who were age 22 or older $5 per day -- double the average wage offered by other car factories.
    "Use, do not abuse; neither abstinence nor excess ever renders man happy."

    -- Voltaire, philosopher

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