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Econ: Unit 5 - Coggle Diagram
Econ: Unit 5
Non-Price Determinants of Demand
Consumer Income
Price of a substitute good
Price of a complementary good
Taste and Preferences
Consumer Expectations about future prices
Number of buyers in the market.
Determinants of Supply
Cost of an Input
Technology or Productivity
Taxes or Subsidies
Price Expectations
Price of Other Outputs
number of suppliers
Price Elasticity of Demand
Definition – the effect of change in price in the quantity demanded
Elastic Product: Demand changes drastically in response to prices changes (PED > 1)
Inelastic Product: Demand changes very little in response to price changes (PED < 1)
Unit Elastic Product: Demand changes proportionally to price changes (PED = 1)
Factors that Influence Demand Elasticity
Type of Good: Necessity, comfort, luxury goods
Income
Substitute Availability
Time Needed to Adjust to Price Change
Price controls
Price Ceiling
A government-imposed price control on how high a price can be charged for a good or service.
Must be lower than equilibrium price.
Usually leads to a shortage
Price Floor
A government-imposed price control on how low a price can be charged for a good or service.
Must be higher than equilibrium price.
Usually leads to a surplus
Black Market
How do black markets hurt the economy?
Less tax revenue
Inaccurate labor statistics and unemployment rates
Governments must make fiscal decisions with potentially inaccurate data
Economic activity that takes place outside government-sanctioned channels.
To avoid taxes, goods and services are sometimes introduced directly into the black market