Aggregate Demand
Aggregate demand is the total spending on goods and services in the economy. AD=C+I+G+(X-M).
The aggregate demand curve is made up of a series of separate curves giving the level of consumption, investment, government expenditure and the net level of exports. This Keynesian aggregate demand curve is upward sloping as the level of expenditure will tend to increase as income increases. How much this happens depends on the marginal propensity to consume.
Aggregate Demand and Supply - Classical
Classical economists believe that in the short run the aggregate supply curve will slope upwards, but in the long run will be vertical. Equilibrium will be where aggregate demand equals supply.
In the short run it is possible for the economy to expand beyond full employment, but this will cause the price level to rise and in the long run the economy will return automatically to full employment, but at a higher price level. This results in a vertical long run aggregate supply curve.
Ansoff Matrix
Average (Total) Cost
Average Fixed Cost
Average fixed cost is total fixed cost divided by output (the fixed cost per unit). The AFC curve slopes constantly downwards.
Average Variable Cost
Average variable cost is the variable cost per unit of output. It is calculated by dividing the level of average variable cost by the level of output.
Aggregate Expenditure (Demand) Curve
Average Revenue and Marginal Revenue
Average revenue is the level of total revenue divided by output. Marginal revenue is the revenue that the firm receives for the next unit of output.
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