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PRICE CONTROLS: Government intervention in markets in which legal restrictions are placed on the prices charged. The two basic types of price controls are price ceilings and price floors. Price ceilings are maximum prices set below the equilibrium price. Price floors are minimum prices set above the equilibrium price. Price controls imposed on an otherwise efficient and competitive market create imbalances (shortages or surpluses) which cause inefficiency. However, imposing price controls on a market that fails to achieve efficiency (due to market control, externalities, or imperfect information) can actual improve efficiency. Price controls have also be used economy-wide in an attempt to reduce inflation.
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Lesson 4: Production Possibilities | Unit 1: Getting Started
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Page: 2 of 24
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Every economic analysis builds on certain preconditions or assumptions. Assumptions, whether reasonable or seemingly unrealistic, let us:- Establish abstract benchmarks for comparison or
- Break an analysis into simpler, more easily manageable parts.
Four key assumptions: - Two Goods: Resources are used to produce one or both of only two goods. This is a simplifying assumption that lets us display graphs on the screen.
- Fixed Resources: The quantities of the labor, capital, land, and entrepreneurship resources do not change. This is a reasonable assumption that we can change to analysis resource changes.
- Fixed Technology: The information and knowledge that society has about the production of goods and services is fixed. This is another reasonable assumption that we can change to analysis technology changes.
- Technical Efficiency: Resources are used in a technically efficient way. We get the maximum possible production out of the resource inputs.
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SLOPE, AGGREGATE DEMAND CURVE The negative slope of aggregate demand curve, reflecting the inverse relation between the price level and aggregate expenditures on real production, is attributable to three primary effects--real-balance effect, interest-rate effect, and net-export effect.
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PURPLE SMARPHIN
[What's This?]
Today, you are likely to spend a great deal of time flipping through the yellow pages trying to buy either a video game player or an AC adapter that won't fry your computer. Be on the lookout for broken fingernail clippers.
Your Complete Scope
This isn't me! What am I?
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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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"Defeat is simply a signal to press onward. " -- Helen Keller, author, lecturer
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ARP
Average Revenue Product
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