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MARKET TRANSACTION: The exchange of goods and services through a market. The set of market transactions taking place in the economy is most important in terms of measuring gross domestic product (GDP). Market transactions provide the basic data used by number crunchers at the Bureau of Economic Analysis to begin the estimation of GDP. However, these number crunchers don't just want to measure market transactions, their goal is to measure economic production. As such, they eliminate some market transactions that do not involve economic production, then add economic production that do not involve market transactions.

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Lesson 12: Elasticity and Demand | Unit 5: Other Measures Page: 24 of 25

Topic: Cross Elasticity Of Demand <=PAGE BACK | PAGE NEXT=>

  • How responsive is my demand to this change in my other prices? To answer these questions, we need the cross elasticity of demand.

  • Cross elasticity of demand is the relative response of the demand for one good to changes in the price of another good.
  • Or stated in percentage terms: the cross elasticity of demand is the percentage change in demand for one good resulting from a percentage change in the price of another good.

  • The cross elasticity of demand is a handy numerical measure commonly used by economists to identify complement and substitute goods:

    • For a substitute good, cross elasticity is positive, meaning that an increase in the price of one good leads to an increase in demand for the other good.

    • For an complement good, cross elasticity is negative, meaning that an increase in the price of one good leads to a decrease in demand for the other good.

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COMMAND ECONOMY

An economy in which the government uses its coercive powers to answer the three questions of allocation. This is the real world version of the idealized theoretical pure command economy. While in this real world version some allocation decisions are undertaken by markets, the vast majority are made through central planning.

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Today, you are likely to spend a great deal of time flipping through mail order catalogs looking to buy either a package of 4 by 6 index cards, the ones with lines or a 50 foot extension cord. Be on the lookout for empty parking spaces that appear to be near the entrance to a store.
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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