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Determinants of Economic Concepts Brain Map, Demand ->, <- Supply,…
Determinants of Economic Concepts Brain Map
Demand
Price
Changes in Price affects the Demand according to the Law of Demand (increase in price, decrease of demand. decrease in price, increase of demand).
Curve Extends or Contracts according to change in price
Affects Quantity Demanded
Non-Price
Price of other goods
Complimentary Goods
Increase in the price of such goods will reduce the demand for the product. The curve shifts left
Decrease in the price of such goods will increase the demand for the product. Hence, the curve shifts right.
Substitute Goods
Increase in the price of such goods will increase the demand of the product. Hence, the curve shifts right
Decrease in the price of such goods will decrease the demand of the product. Hence, the curve shifts left.
Definition: Goods that are produced to fulfil the same or similar purpose
Income
Inferior Goods
Definition: The demand of such goods decrease as the incomes of the consumer increase
Example: Economy Class Air Tickets
Increase in Incomes will reduce the demand of Inferior Goods. Hence, the demand curve shifts left
Decrease in Incomes will increase the demand of Inferior Goods. Hence, the curve will shift left
Normal Goods
Definition: Goods that behave normally to changes in income. Example: Soft-drinks
Increase in income will increase the demand of normal goods. Hence, the curve shifts right
Decrease in incomes will decrease the demand of normal goods. Hence, the curve shifts left
Tastes and Preferences
Changes in Tastes and Preferences will result in changes in the demand of the product.
Demographic Changes
Changes in the demographic of possible consumers will change the demand of the product. Example: If the population of young adults and teenagers of a country decreases, the demand for fizzy drinks may reduce as well. Hence, the curve would shift left.
Expectations and Future Prices
If the price of a product is expected to increase in the future. the demand for it now will increase. Hence, the curve shifts right
If the price of a product is expected to decrease in the future, the demand for it now will decrease. Hence, the curve shifts left
Number of Potential Buyers
An increase of potential buyers will increase the demand for a product. Hence, the curve shifts right
A decrease in the number of potential buyers will decrease the demand of a product. Hence, the curve shifts left
Government Policies
Government may implement bans on some products which decrease the demand for them. Hence, the curve shifts left.
Government may reduce/increase the taxes of certain goods and increase/decrease the demand for them. Hence, the curve shifts right/left
Seasonal Changes
Changes in the Season may make some products more desirable than others and impact the demand of these products. Example: Christmas Decorations have a greater demand in December
Supply
Price
Changes in Supply affects supply according to the Law of Supply (increase in price increases supply, decrease in price decreases supply)
Curve Extends or Contrasts according to change in price
Affects Quantity Supplied
Non-Price
Factor of Production Costs
Increase in FoP Costs will decrease Supply. Hence, the curve shifts to the left
Decrease in FoP costs will increase supply. Hence, curve shifts right
Definition: Costs incurred for the resources used to produce goods
Other Related Goods
Competitive Supply
Definition: Production of goods that use the same resources despite its limited availability
Increase in the production of such goods will decrease the supply of this product. Hence, the curve shifts to the left
Decrease in the production of such goods will increase the supply of the product. Hence, the curve shifts to the right
Joint Supply
Definition: Goods that are produced simultaneously
Increase in the production of such goods will increase the supply of the product. Hence, the curve shifts to the right
Decrease in the production of such goods will decrease the supply of the product. Hence, the curve shifts to the left
Government Intervention
Taxes
Can be Corporate or Indirect
Definition: Taxes are treated as an additional cost by businesses
Increase in cost will decrease the supply of the product. Hence, the curve shifts to the left
Decrease in cost will increase the supply of the product. Hence, the curve shifts to the right
Subsidies
Definition: Payments made by government that need not be repaid.
Decrease in cost will increase supply. Hence, the curve shifts right
Rules and Regulation
Definition: Extra requirements that generally causes an increase in costs
Increase in cost decreases supply. Hence, the curve shifts left
Productivity/Technology
Increase in Technology increases supply. Hence, the curve shifts to the right
Increase in productivity increases supply. Hence, the curve shifts to the right
Decrease (or damage) in technology decreases supply. Hence, the curve shifts to the left
Exceptions
Expectations and Future Prices
Expected increase in price will decrease supply now. Hence, the curve shifts to the left
Expected decrease in price will increase supply now. Hence, the curve shifts right
Number of Firms
Increase in the number of firms will increase supply. Hence, the curve shifts right
Decrease in the number of firms will decrease supply. Hence, the curve shifts left
Supply Shocks
Definition: Unprecedented events that generally damages resources
Decreases FoPs will decrease supply. Hence, the supply curve shifts to the left
Price Elasticity of Demand
Substitutes
Number of substitute products available (competitors)
High Number of Substitutes = More elasticity
Low Number of Substitutes = Less elasticity
Proportion of Income
How much the product costs with reference to the consumer's income earned
High portion of income = More responsive to changes in price = More elasticity
Low portion of income = Less responsive to changes in price = Less elasticity
Luxury or Necessity
How valuable is the product to the consumer
Luxury = More elasticity
Necessity = Less elasticity
Addictive or not
How addictive is the product
Addictive = Less elasticity
Not addictive = More elasticity
Time to respond
More time to respond = More elasticity
Less time to respond = Less elasticity
Demand ->
<- Supply
PED ↑