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CHANGE IN REAL PRODUCTION: The movement along the short-run or long-run aggregate supply curve caused by a change in the price level. This should be contrasted directly with a change in aggregate supply. You might also want to review the terms change in quantity supplied and change in supply, as well. A change in real production for short-run aggregate supply actually means real production changes with a movement along a given SRAS. However, a "change in real production" for long-run aggregate supply really refers to a movement along a given LRAS curve and doesn't actually involve a change in production. A change in real production means that we have identified a NEW price level-real production combination on the existing aggregate supply curve. In contrast, a change in aggregate supply means that we have changed, moved, or shifted, the entire aggregate supply curve, the whole range of price levels and real production amounts has changed.

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Lesson 10: Utility and Demand | Unit 2: A Simple Choice Page: 6 of 21

Topic: Demand For A Good <=PAGE BACK | PAGE NEXT=>

  • Demand captures changes in quantity demanded resulting from changes in the price.

      Let's take stock of what has happened:

      • The price of beach admission has declined from $1 per hour to $0.50 per hour.
      • The quantity demanded of beach time has increased from 2 hours to 4 hours.
      • Total utility has increased from 22 utils to 36 utils because a larger quantity has been consumed.
      • Marginal utility has decreased from 10 utils to 6 utils, again because a larger quantity has been consumed and the law of diminishing marginal returns has been at work.

    • In conclusion, the lower price of admission has allowed me to purchase a larger quantity of beach time with a given income.

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ECONOMIES OF SCALE

Declining long-run average cost that occurs as a firm increases all inputs and expands its scale of production. Economies of scale result from increasing returns to scale and are graphically illustrated by a negatively-sloped long-run average cost curve. Economies of scale usually occur for relatively small levels of production and are then overwhelmed by diseconomies of scale for relatively large production levels. Together, economies of scale and diseconomies of scale create a U-shaped long-run average cost curve.

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Today, you are likely to spend a great deal of time driving to a factory outlet trying to buy either a birthday gift for your uncle or a pair of red and purple designer socks. Be on the lookout for florescent light bulbs that hum folk songs from the sixties.
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
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