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Using the AS / AD Model,graphically Illustrate and Explain the Short-Run

question 8

Essay

Using the AS / AD model,graphically illustrate and explain the short-run and medium-run effects of a reduction in productivity.In your graph,clearly label all curves and equilibria.For simplicity,assume that the change in productivity has no effect on aggregate demand.


Definitions:

Willingness To Pay

The maximum amount an individual is prepared to expend on a good or service, reflecting their valuation of it.

Horizontal Summation

A method used in economics to describe the total demand or supply in a market by adding together individual demands or supplies at the same price level across different entities.

Vertical Summation

A method used in economics to aggregate individual demand curves to find total market demand for a good.

Private Good

A product or service that is excludable and rival in consumption, meaning its use by one individual prevents its use by another.

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