Pls explain the highlights
Solution:
Equilibrium income means when AD =AS, S=I (Saving = Investment).
In micro economics, demand and supply itself calculate its price and quantity , but in Macroeconomics we consider two assumption
(i) When we fixed the price and (ii) when we allow price to vary or to change
now question arises why we fixed the price so reason for that is - Firstly,that there are unused resources such as machinery, land etc and we can produce quantity with them without making any changes in marginal cost ( or law of diminishing return not applied that says when with the fixed factor we increases our variable factors our output increases initially but later on it will decline).or there is no change in cost level (price) even when we increase the output we can produce more output with that unused resources, secondly they are just assumption that can be changes later.
Equilibrium income means when AD =AS, S=I (Saving = Investment).
In micro economics, demand and supply itself calculate its price and quantity , but in Macroeconomics we consider two assumption
(i) When we fixed the price and (ii) when we allow price to vary or to change
now question arises why we fixed the price so reason for that is - Firstly,that there are unused resources such as machinery, land etc and we can produce quantity with them without making any changes in marginal cost ( or law of diminishing return not applied that says when with the fixed factor we increases our variable factors our output increases initially but later on it will decline).or there is no change in cost level (price) even when we increase the output we can produce more output with that unused resources, secondly they are just assumption that can be changes later.