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SPACE: The final frontier... to boldly go where no one has gone before. Space represents a key dimension of the land category of scarce resources. The space of land provides a place for locating productive activity. This becomes most important in terms of accessibility, which is one location relative to other locations.

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Lesson 14: Aggregate Supply | Unit 5: Connections Page: 18 of 20

Topic: Self-Correction <=PAGE BACK | PAGE NEXT=>

The aggregate market has a self-correcting mechanism that ensures the long-run full-employment equilibrium will be reached by itself, without government policies.

The predicament:

  • Long run means full employment and flexible prices.
  • Short run means price rigidity without full employment.
The automatic, self-correcting solution:
  1. Disequilibrium in the labor market exerts pressure on wages to correct the imbalance, even with wage rigidity.
  2. This automatically moves us from the short run to the long run and full-employment equilibrium.
The critical question: How long does the self-correcting mechanism take? Days? Months? Years?

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INFLEXIBLE PRICES

The proposition that some prices adjust slowly in response to market shortages or surpluses. This condition is most important for macroeconomic activity in the short run and short-run aggregate market analysis. In particular, inflexible prices (also termed rigid prices or sticky prices) are a key reason underlying the positive slope of the short-run aggregate supply curve. Prices tend to be the most inflexible in resource markets, especially labor markets, and the least inflexible in financial markets, with product markets falling between the two.

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Today, you are likely to spend a great deal of time wandering around the downtown area hoping to buy either a wall poster commemorating the 2000 Olympics or a flower arrangement with a lot of roses for your grandmother. Be on the lookout for neighborhood pets, especially belligerent parrots.
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The first paper currency used in North America was pasteboard playing cards "temporarily" authorized as money by the colonial governor of French Canada, awaiting "real money" from France.
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