Using a graph, show a market equilibrium. Suppose the costs of inputs increase. How is this shown on the graph? Explain what is happening in the market
What will be an ideal response?
In the graph, the original equilibrium is at E, where the demand curve and the supply curve intersect. Price is P1 and quantity is Q1. The increase in costs of inputs causes the supply to decrease, shown by a shift of the supply curve to the left (S1). At price P1, there is an excess quantity demanded equal to Q1 - Q3. Price rises to P2, causing quantity demanded to decrease until the new equilibrium at E is reached. The new price is P2 and the new quantity is Q2.
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In a recession, the Fed's monetary policy aims to ________ the real interest rate, ________ aggregate demand, and ________ aggregate supply
A) decrease; increase; increase B) decrease; increase; not change C) increase; not change; increase D) increase; increase; increase E) increase; decrease; not change.
The average fixed cost curve
a. always declines with increased levels of output. b. always rises with increased levels of output. c. declines as long as it is above marginal cost. d. declines as long as it is below marginal cost.