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PERFECT COMPETITION, LOSS MINIMIZATION: A perfectly competitive firm is presumed to produce the quantity of output that minimizes economic losses, if price is greater than average variable cost but less than average total cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds average total cost) and shutdown (if price is less than average variable cost).
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Lesson 11: Circular Flow | Unit 3: Government
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Page: 11 of 22
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The government sector plays a key role in the economy and the circular flow with government spending, especially for the purchase of GDP, and taxes.- Government purchases include: national defense, roads, educational system, post offices, fire and police protection, parks, sewage treatment plants, and more.
- Taxes are used to divert household sector income to the government sector to pay for these purchases.
- The diversion of income into taxes used to purchase government production shows up in the circular flow model.
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SLOPE, NET EXPORTS LINE The negative slope of the net exports line is based on the marginal propensity to import (MPM). Because net exports are exports minus imports, the induced change in imports causes an opposite change in net exports. As such, the slope of the net exports line is negative, less than zero (but greater than negative one). The slope of the net exports line affects the slope of the aggregate expenditures line and thus also affects the magnitude of the multiplier process.
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Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
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"Man is born to live, not to prepare for life. " -- Boris Pasternak, writer
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LF
Labor Force, Laissez-Faire
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