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ADJUSTMENT, LONG-RUN AGGREGATE MARKET: Disequilibrium in the long-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the long-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the long-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases long-run equilibrium is restored. Price level changes induce changes in aggregate expenditures but NOT changes in real production. The reason is that long-run aggregate supply is full-employment real production, which is unaffected by the price level.
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Lesson 16: Perfect Competition | Unit 4: Long-Run Equilibrium
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Page: 19 of 28
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Topic:
Long-Run Marginal Cost
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- The firm's long-run marginal cost:
- Long-run marginal cost is the change in total cost resulting from a change in the quantity of output produced by a firm in the long run.
- The primary difference between the long run and short run is what constitutes cost.
- In the short run, cost changes due to changes in variable inputs such as labor and materials. In the long run, cost changes due to changes in ALL inputs, because ALL inputs are now variable.
- Moreover, short-run changes in cost are guided by the law of diminishing marginal returns. Long-run changes in cost, in contrast, are guided by returns to scale.
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AVERAGE COST The opportunity cost incurred per unit of good produced. This is calculated by dividing the cost of production by the quantity of output produced. While average cost is a general term relating cost and the quantity of output, three specific average cost terms are average total cost, average variable cost, and average fixed cost. A related cost term is marginal cost.
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GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors seeking to buy either a birthday greeting card for your grandmother or a coffee cup commemorating yesterday. 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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"You have to find something that you love enough to be able to take risks, jump over the hurdles and break through the brick walls that are always going to be placed in front of you. If you don't have that kind of feeling for what it is you're doing, you'll stop at the first giant hurdle. " -- George Lucas
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AEA
American Economic Association
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