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AS: The abbreviaion for aggregate supply, which is the total (or aggregate) real production of final goods and services available in the domestic economy at a range of price levels, during a given time period. Aggregate supply (AS) is one half of the aggregate market analysis; the other half is aggregate demand. Aggregate supply, relates the economy's price level, measured by the GDP price deflator, and aggregate domestic production, measured by real gross domestic product. The aggregate supply relation is generally separated into long-run aggregate supply, in which all prices and wages and flexible and all markets are in equilibrium, and short-run aggregate supply, in which some prices and wage are NOT flexible and some markets are NOT in equilibrium.

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Lesson 5: Demand | Unit 2: Law of Demand Page: 7 of 20

Topic: Substitution Effect <=PAGE BACK | PAGE NEXT=>

The second reason for the law of demand is the substitution effect.
  • The substitution effect exists because a change in the price of a good makes this price relatively higher or lower than the prices of other goods.
  • The higher the price of a good, then the more expensive it is relative to other goods. The lower the price of a good, then the less expensive it is relative to other goods.
  • Other prices remain unchanged.
  • The substitution effect is usually more important than the income effect.

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COMPLEMENT-IN-PRODUCTION

One of two (or more) goods that are simultaneously produced using a given resource. A complement-in-production is one of two alternatives falling within the other prices determinant of supply. The other is a substitute-in-production. An increase in the price of one complement good causes an increase in supply for the other.

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Today, you are likely to spend a great deal of time driving to a factory outlet seeking to buy either an electric coffee pot with automatic shutoff or a brown leather attache case. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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North Carolina supplied all the domestic gold coined for currency by the U.S. Mint in Philadelphia until 1828.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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