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 AS-AD MODEL: An economic model relating the price level and real production that is used to analyze business cycles, gross domestic product, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The AS-AD model, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short-run and long-run aggregate supply (the sellers).
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 Lesson 11: Circular Flow | Unit 1: Basic Flow Page: 1 of 22

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Economic activity can be separated according to the four basic macroeconomic sectors--household, business, government, and foreign. The circular flow model helps us analyze the interaction among these sectors.

The circular flow is a model of the continuous production and consumption interaction among the four major sectors (household, business, government, and foreign), that takes place through the three aggregated macroeconomic markets (product, factor and financial).

• The circular flow is a simple model that helps us understand the complex real world economy.

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AVERAGE FACTOR COST AND MARGINAL FACTOR COST

A mathematical connection between average factor cost and marginal factor cost stating that the change in the average factor cost depends on a comparison between average factor cost and marginal factor cost. For perfect competition, with no market control, marginal factor cost is equal to average factor cost, and average factor cost does not change. For monopsony and other firms with market control, marginal factor cost is greater than average factor cost, and average factor cost rises.

 PURPLE SMARPHIN[What's This?] Today, you are likely to spend a great deal of time at an auction trying to buy either storage boxes for your winter clothes or several magazines on time travel. Be on the lookout for crowded shopping malls.Your Complete Scope
 A half gallon milk jug holds about \$50 in pennies.
 "Man is born to live, not to prepare for life. "-- Boris Pasternak, writer
 LIBORlondon Inter-Bank Offered Rate
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