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Economics (Price Theory (Demand Shifters- 1. Change in population of…
Economics
Price Theory
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Supply- How much should I produce? (Law of supply)- As prices increase sellers are willing and able to produce more of the good.
Demand- Consumers willingness and ability to consume a certain good. (Law of demand)- At lower prices people buy more while at higher prices people choose to buy less. The 20/80 rule describes how over 20% of the world have 80% of the wealth.
Supply Shifters- 1. Number of producers/sellers in an area, 2. Costs of production, 3. Technological change, 4. Changes in future expectation prices.
Demand Shifters- 1. Change in population of available consumer, 2. Change in income, 3. Change in price of related good, 4. Change in expectation of future prices, 5. Change in consumer information, 6. Change om tastes and preferences.
If the good for a normal good shifts to the right than the good is considered a normal good. While if it shifts to the left than it is inferior.
Complementary- Demand effected by changes in the price of other products that are used along with that good. Substitutes- Demand effected by changes in price that are used instead of he item.
Price elasticity of demand- Measures how responsive demand is to change in price. PED= %change in demand/ %change in price
Price ceilings- Maximum prices set by the government on a specific good if the item is sold at to high of a price. Price floors- Minimum price that the government can set for an item.
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