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10,000 A
Quantity of Blueberries
5,000 B
1,000 C
0 400
800 Quantity of Oranges

*
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10,000
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The Trade-off Between Oranges and Blueberries
10,000
You decide to produce 4,000 more blueberries.

5,000 2
You produce 400 fewer oranges.
1,000 1
0 400
800
Quantity of Oranges
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"!!$# " %

Steve gets a constant, positive amount of utility from each of the first 12 waffles.
Steve continues to derive satisfaction from the waffles, so his

marginal utility remains positive until he reaches waffle number 36.
However, each successive waffle is less satisfying than the previous
waffle, so Steve's marginal utility diminishes.
(utils per waffle)
Marginal Utility
+10
After waffle number 36, if Steve were to
continue eating, he'd make himself ill. His
marginal utility would become negative, and it
would continue to diminish with each
0 successive waffle.
-5
12 36
Number of Waffles Consumed
/
/
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For the first 12 waffles, Steve's total utility is increasing at a constant rate.
Total Utility
After waffle 36, if Steve were to

continue eating, his marginal utility
would become negative, so his
total utility would begin to
decrease.
Between waffle 12 and waffle 36, Steve's

marginal utility is diminishing, but because
MU remains positive, his total utility continues
12 36 to increase, albeit at a slower rate than
before.
Number of Waffles Consumed
/
/
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1100
Price per TV (in Dollars)
900
700
500
1000 2000 3000

Quantity Demanded of TVs D

"+)+++++++
(( (
%+ + $ )!+ + + + (%#&(
(
(
+ + &+ + "+ + $( ( ( (
+ + %+
+ + + + + + + $!( ( "!( (
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+ "+ + + + + + + $( ( !( (
&+"++++ !++ + $( ( ( (
'+
+

(( (
2.00
Price per DECADOG (in Dollars)
1.50
1.00
.50
10 20 30 40 50 60 70
Quantity Demanded of DECADOGS

+
+
++ + &+++ !++ +%++++ !++ +
"+++ !++
%++"+ + !++
'%+
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!$#" $

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+ !+++#+$+#+"++#++ ++
+++#++$+)++++%++++!$+
++ +++++ *++++++++$+

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)++++++$+)+#+++++++ $+

P P
a change
in price
a change in demand
D D2
D1
Q Q
a change in quantity demanded + +
+!+++++++!++++ ++++ ++++$+
+!++++!+#++++$+)+#+#+++++!+
%+ +++&+

+ + %+ + + + + + $+ + + + %+ + +
#+++$++
+ + %+ + + + + + $+ %+ + + + %+ +
+#+++!$++

P P
the curve shifts the curve shifts

to the right to the left
no change no change
in price in price
D1 D2 D2 D1
Q Q
quantity demanded increases + quantity demanded decreases +

$"! #

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P P If college students get their
If consumer
income student loan checks, then
increases, then their income increases (or
the demand so it seems). The demand
curve shifts for macaroni n' cheese
to the right. dinners decreases, so the
curve shifts to the left.
D1 D2 D2 D1
Q Q
+ +
!+ ++%+(+% ++"'+%+++ ++++
++!%+++ ++ ++'+ !$!%+ +
+++++
+++++%(+ %+++ ++ ++++ '++

+
+++ ++!+ ++!"+ + + + + ++ '++
(+ + + + + !+ + + + #+ + !%+ + + +
+ (+ + ! %+ ++ + +++#!+ + %+ (+
+ + + !"+ + + #!+ + + + '+ + + + ! + %+
+ ++!"+ + + )++%+#+! + + + + + '+

P
Initially, consumers are willing and able to buy 30
DECADOGS at the price of $0.50 per dog. When half
the population suddenly perishes of resistant bacterial
infections, there are only half as many consumers
remaining, so they can only buy 15 DECADOGS-- half
as many at the same price level. The demand curve
$0.50 must shift to the left to show this change.
D2 D1
Q
0 15 30
+

++!+ (++%+&(+
+#++++++ +! +(+ ++
#+ +!%+
+! + +++#++ %++#+!(+ +#++ +
+
(+ #+ %+ + + + + + + + ! + '+ #(+ !+ + +
(+ +! +!!++#+ !%++
+ +++! '++

%(+ + !+ $ + + + + + + + + $"+ + + ! !(+
%*++%+ +!%+ + +#%'+++ +!++ !+ ! %++ +
(+++++ +++!!+'+

&#$'& "%##(

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& 5 5 ! 55!5 5

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5
5 5 55!!5 " 55$5!5" 5555!)5 5555
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5!&5$!5!5555!5 !5).5 5 5!5 55!5 " !!"!5
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5
5 5 $5 "&5 )5 5 5 &"5 $"5 #5 5 !5 "5 5 5
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5

When the price of iced tea To quench your thirst, you
P rises from $1.50 per glass P join the population of
to $1.75, the seller loses consumers who are willing
your business and the and able to to spend $1.50 on
quantity demanded a glass of lemonade, and you
decreases from 12 to 10. cause the whole demand
$1.75
$1.50 curve to shift.
$1.50
D D1 D2
Q
12 Q
10 5 10 14 5
5

5 5 55!!5 5 !5$!5!5" 5!5!$5 55 "5
!!)5 "!5"!!55&55! )5 ! 55!5! 55! )5
5 !5 5 5 5 5 *5 !5 !5 "!!&5 5 5 !5 5 $5 *5 5 !5
5!50 5!5$5 5 5$*5 5$55$55!)5
5 5 %)5 "05 !&5 "5 5 &"5 "%"&5 5 !5
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)5 "5555*5"!5 5" 5!5 !)5
5 5!5 55&"5 55 55
5!5&")5
5 !" 5!5!55!)5!5 !*5!$5 *5 5$ *515#5" !,5
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"5 "5 5 &"5 !5 5 5 5 !5 )5 5 5 5
*5 5 5 !"!5
!*5 &"5 $5 !5 5 5 $ )5 "5 !&5 !*5
55555555555555555555555555555555555555555555555555555555
5 5!&5 5 5!55! +5$55%!55!5!5!5 *5!&05 5&5!5
'(
#!55*55!55&5!!55$5 )55

# # # # # # # # # # # #
# # # "#
# # # !#

# # #### # !!!

$#"%$ #!!&

-
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#)
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P
When the price of a bag There are eight
P
of hotdog buns rises from hotdog buns in a
$3.00 to $5.00, the bag, so when 750
$5.00 quantity demanded falls. fewer bags of
buns are sold,
$1.50 6,000 fewer
$3.00 D2 D1 DECADOGS are
sold.
D Q
1000 7000
Q
250 1000 The price of DECADOGS did not change, but
- the quantity demanded has decreased. -
--- &-
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P At one time, almost no one in his right mind would
have paid $300 for a toy. But good advertising
convinced more people to join the population of
$300
consumers who were willing and able to buy
Tickle-Me-Elmos for $300 apiece. The demand
curve shifted to the right.
D1 D2
5 100 Q
The price of Tickle-Me-Elmos did not change, but for a

short time, the quantity demanded increased. -

! "

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P ($) Initially, consumers were willing and able to buy a
loaf of bread. But after the advent of the Atkins
Diet,it seems noone wants bread anymore. The
price of bread has not changed, but the population
of consumers who are willing and able to buy bread
has decreased, so the demand curve has shifted to
the left.
D2 D1
0 Q (loaves)
The price of bread has not changed, but the quantity demanded
< has decreased. <

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1100 S
Price per TV (in Dollars)
900
700
500
1000 2000 3000

Quantity Supplied of TVs ?
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When the price of low-grade

meat increases, you are willing
to supply fewer DECADOGs at
each possible price. Although
there has been no change in
your selling price for
DECADOGS, you have
reduced your quantity supplied.
Q
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S1 S2
P
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Dog-o-Lator, you can now
supply twice as many
DECADOGS. Without changing
your prices, you double your
quantity supplied, so the supply
curve shifts to the right.
Q
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S SNow
P
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their good to go down in the
future, they'll be more willing to
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supply curve in the present.
The present price doesn't
change, but the present
quantity supplied increases, so
the supply curve shifts to the
right.
Q
&
SNow S
P
If suppliers expect the price of

their good to go up in the
future, they'll be less willing to
sell it at each price along the
supply curve in the present.
The present price doesn't
change, but the present
quantity supplied decreases, so
the supply curve shifts to the
left.
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P
S2 S1
When a plague wipes out half

the suppliers of bicycle wheels,
the quantity supplied of bicycle
wheels is reduced by half at
each possible price. To reflect
the change, the supply curve
shifts to the left.
Q
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exchange price market equilibrium
exchange quantity

P
S An increase in consumer
1 income causes the demand
curve for an inferior good to
In the new equilibrium, P1 shift to the left.
4
the exchange price is
P2
lower. The change in demand results
2
in a new market equilibrium.
D2 D1
Q
Q2 Q1
In the new equilibrium,

3 the exchange quantity
is lower.
P

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price floor
equilibrium price equilibrium price
price ceiling
D D
A price floor is set above the A price ceiling is set below

market equilibrium price. We the market equilibrium price.
call it a "floor" because the price We call it a "ceiling" because
can't go any lower. the price can't go any higher.
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equilibrium price equilibrium price
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Total utility
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Number of Mounds Bars

curves move
5 x away from the
origin.
4
3
y
2
B
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1
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1 2 3 4 5
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The individual firm is forced to

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Marginal Revenue
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or Marginal Cost
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Price of Lumber
Price of Lumber
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Price of Lumber
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RESOURCE MARKET (LABOR , ETC .)
EMPLOYMENT INCOME
FACTOR PAYMENTS leakage
GOVERNMENT
FIRMS
HOUSEHOLDS
PAYMENTS TO FIRMS
BUSINESS RECEIPTS injection
GOODS AND SERVICES MARKET

(

( ( ( ( ( ( ( ( ( "( ( ( ( ( (
!( (
(( ( ( ( ("( ( (
( ( (!(( (( ( (
("( ( (( ( (( ( ("(
( ( (( ( (!(
RESOURCE MARKET (LABOR , ETC .)
EMPLOYMENT INCOME
imports
FACTOR PAYMENTS
GOVERNMENT
FIRMS
HOUSEHOLDS
exports
PAYMENTS TO FIRMS
BUSINESS RECEIPTS
GOODS AND SERVICES MARKET (

% (

( ( ( (
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& (
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!

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When economic growth
Quantity of Milk Produced

occurs, the PPF shifts
outward.
Quantity of Missiles Produced 4

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#%4!!" 4#4#"444!" ,44

% change in real GDP, 1930-2002 (in 1996 dollars)
20.0
15.0
10.0
5.0
0.0
1930 1940 1950 1960 1970 1980 1990 2000
-5.0
-10.0
-15.0
@
@
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peak
An expansion is an
increase in
business activity,
Real GDP per Quarter
lasting at least two

quarters. A recession is a
decrease in
business activity,
lasting at least two
quarters.
trough
Time (in Quarters) 8

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Price Level
((((%(($(($(($(
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Quantity of Output Demanded
4
4
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8 8
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Price Level

Y = C + I + G + X
8
AD1
AD2
Quantity of Output Demanded 8

8 #$48 #$8 1%%8 $.8 8 #$8 '8 %*48 8 (8 8 %8
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! !! !
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Price Level
!

! ! !

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!!! !
Y = C + I + G + X AD1 AD2
!
Quantity of Output Demanded !

' $''
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Price Level

! ! !

! ! ! ! !
!
AD1 AD2
Y = C + I + G + X
'
Quantity of Output Demanded '
! ''
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Price Level
!! !

!!! !!!
! !
AD1 AD2
Y = C + I + G + X
'
Quantity of Output Demanded '

'$"%$ #!!&

3
3
33333)3(33 3333
13 3 3 3 3 3 3 3 )3 3 3 3 3
(3 13 3 3 3 3 3 3 3 3 3 3 3
3 3 13 (3 3 )3 3 3 3 3 3 3 (3
3 /03
)3/03)333333 3333(3

Price Level

Y = C + I + G + X
3 AD1 AD2

3
!3 3 3 3 3 3 3 (3 3 3 3 3 3
)3333 333!3 (3333+/0,3)3
3/033)3(3 3333333(3

Price Level

AD1 AD2
Y = C + I + G + X
3

3 !3 3 3 3 3 3 3 3 !!3 !3 3 '%")"""(3 3 3 )3 !3 3
3 '$")"""3 3 2!3 3 !3 )3 !3 )3 !3 3 3 !3
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(% "%$ #!!&

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5
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9 !9 9 $9 9 "9
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29 "!99!9#!9% 29 9 !9$& 9"!9.'/99 9199!9
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$ $ $ $
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$ "$ $ $ $ $ $ $ $ $ $
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$ $ $ $ $ $ $ $ $ $ $ $ $ $

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AS
Price Level
full employment
Quantity of Output Supplied $
$$$$$$ $$$ $$ $$$ $$$$
$ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $
$$
$ $$ $ $$ $$
$$ $$$
$$ $

$ $ $$
$$ $ $$$$$$ $$$ $ $$
$

$ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $
$ $ $ $
$$$$ $$$ $$$$$$
$

AS AS
Price Level
Price Level
AD
AD
Output $ Output $

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%/ // / //!//#%//// .!/ /!/ //'/
%/ ! / / / / !/ / ##/ / / / &/ / / /
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/

AS
If the government lowers taxes
or increases government
spending, then the aggregate
Price Level
demand curve will shift to the

right.
The price
level rises.
AD1 AD2
Output = Income
Employment and
productivity (GDP) both
increase. /

"! "

! ! 7 $"7 (#7 #7 %!#7 "7 #7 #!(7 #7 "&7 &7 #7
(37$"$(7#7#7#37(7#7!#7277%!#747
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! ! !7 #'"7 7 "$!"7 %7 ""7 ""7 37 ! $!7
#7#7"7""277!#77$!%7"#"7#7#7#27(#7!""7
77"27
! ! !

AS
If the government raises

taxes or decreases
The price government spending, then
Price Level
level falls the aggregate demand

(inflation is curve will shift to the left.
curbed).
AD1
AD2
Output = Income 7

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AS If aggregate demand increases
too much, then the price level
will rise even though
consumers won't be receiving
The price
Price Level
any more goods and services.

level
increases.
AD1 AD2
Output = Income
Productivity does not change. /

•
/
/"///

/ / / !/

/ / /

/ / /

5
AS2 AS1
If factor costs
increase, then
aggregate supply will
The price decrease, so the
Price Level
level curve will shift to the
increases. left.
AD
Output = Income
Productivity decreases, even though

consumers have to pay more for
goods and services.
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10 Missiles
10 Missiles
Relative Price of a Gallon of Milk = = ? Missile per Gallon
20 Gallons of Milk 7
7#7!,77777 Production Possibilities in Decalon
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

  5 487 

$&"7 $7 #/7 $$2#7 '$7   #$#7 7 ) %"7 

 '7  7 ) %7 7 '$7 $ 7  07 )7 ) %7 !7 7  .7 %$7  #$7

 "7 '/7$7 7  #7#7$7#$%)7 7  7# #67$7#7 7  7##.77

$2#7 %$7 '7) %77'$"7$ 7$77%""7 "77 '7 7 #.777

$2#7 %$7 '77 %$")7#7'$"7$ 7&#$77%$ 7 "77$7$").7

$2#7 %$7'$"7$7 &"$7# %7!7) %77) %72$777 .7

#7$7' "$7#!7-,*7$ 7!"&$7#  7" 77%!#$07 ).7#7$7' "$7#!7-,/***07

7$#7"# %"/7 '7'7 7$7  7)##77  %"7 "$7"#.7"#$/7'27 #"7$7

#3%3?$"'"'&?&%?'4?+"':?" ?$"%%?;&?&8<?"*%3?%?$?#$ $+?!&!?%?

#99#9$9 %9 "9 $9$9$#/99 %"#.9 %$9$9)9#9$9""9

9  99$9 $9$9$9 '9#%##9 (9#)#$#9$$9"9"9$9

9#/9 )%9&"9'9 

)/9#9#9#"99  

"C("C((C+ C!C#"#!'C'&C(#C'()-C'CC$&"$ C+> C#$(C C    7C

)(C(&C C'&(-7C"C#) C 

6C#$ C+#) C'( C*C) (C'#"'C(#C!7C#"'&C #*C(&" '7CAC" CC

=%"#2=#="#%"#= =##=$=$=$"#1= =&= =$==&==#%$=

)$= $$= #9$= = "= <$$= #2= %#$= %$= &")$<#= =

=#2= "$%$)=#$= 

 /8  848 !8 8 /8 &0%%%8 %8

$"88 8 8  88 8

800 Quantity of Oranges

       

: #":!!"!: " :#!" "!:":

You decide to produce 4,000 more blueberries.

You produce 400 fewer oranges.

: :::#!:":$!#(::" 8:!2:#":":%7"::':!: :#!1: :#!:

:":!"::!"::":" !:$$:: #::: %:!!: :":!2:

":": : ::!!:: %:!!:!::!" ":1: :": : :':"%:!:!:

22 2!)22 #2222!2 #22#22(2 )22

2  2 2 2 2 2 2 2 2 2  

2  2  2 2 2 2 2 2 )2 2

2 2 !2 2 2  

55!5" 5$5!5 5555&55"!&,5!55&5!5" 5!5 ! 5

.8 (8 #8 #(8  $8 %%8 '8 8 "!$"#!

 $88! !&#8% #8 8!# &% -8 %8##$8% 8%8%*8% 8 8&!8(%8&$$$8

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