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Questions and Answers
According to the Law of Demand, what happens to demand when the price of a good increases?
According to the Law of Demand, what happens to demand when the price of a good increases?
What is the effect on demand for a normal good when income increases?
What is the effect on demand for a normal good when income increases?
What happens to demand when the price of a substitute good increases?
What happens to demand when the price of a substitute good increases?
What is the effect of an increase in taxes on demand?
What is the effect of an increase in taxes on demand?
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What is the effect of a subsidy on demand?
What is the effect of a subsidy on demand?
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What is the effect of fiscal policy on aggregate demand?
What is the effect of fiscal policy on aggregate demand?
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What is the effect of monetary policy on demand?
What is the effect of monetary policy on demand?
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What is the purpose of investment incentives in government policy?
What is the purpose of investment incentives in government policy?
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Study Notes
Factors Affecting Demand
- Price: Law of Demand states that as price increases, demand decreases, ceteris paribus (all other things being equal)
- Income: Increase in income can lead to increase in demand for normal goods, but decrease in demand for inferior goods
- Prices of related goods: Increase in price of substitute goods can lead to increase in demand, while increase in price of complementary goods can lead to decrease in demand
- Tastes and preferences: Changes in consumer preferences can affect demand
- Population and demographics: Changes in population size, age, and demographics can affect demand
- Expectations: Expectations of future price changes or availability can affect demand
Government Policies and Demand
- Taxes: Increase in taxes can lead to increase in price, which can decrease demand
- Subsidies: Subsidies can decrease price, which can increase demand
- Quotas and tariffs: Restrictions on imports can lead to decrease in supply, which can increase price and decrease demand
- Regulations: Government regulations can affect demand by making certain products more or less desirable
- Fiscal policy: Government spending and taxation can affect aggregate demand and overall economic activity
- Monetary policy: Central bank's control over money supply and interest rates can affect demand for goods and services
Government Policies to Increase Demand
- Fiscal policy: Increase government spending or reduce taxes to increase aggregate demand
- Monetary policy: Lower interest rates to increase borrowing and spending
- Investment incentives: Offer subsidies or tax breaks to encourage investment and job creation
- Public works projects: Invest in infrastructure projects to create jobs and stimulate demand
- Education and training: Invest in education and training programs to increase human capital and productivity
Factors Affecting Demand
- As price increases, demand decreases, ceteris paribus, according to the Law of Demand
- An increase in income leads to an increase in demand for normal goods, but a decrease in demand for inferior goods
- An increase in the price of substitute goods can lead to an increase in demand, while an increase in the price of complementary goods can lead to a decrease in demand
- Changes in consumer tastes and preferences can affect demand
- Changes in population size, age, and demographics can affect demand
- Expectations of future price changes or availability can affect demand
Government Policies and Demand
- An increase in taxes can lead to an increase in price, which can decrease demand
- Subsidies can decrease price, which can increase demand
- Quotas and tariffs can lead to a decrease in supply, which can increase price and decrease demand
- Government regulations can affect demand by making certain products more or less desirable
- Fiscal policy can affect aggregate demand and overall economic activity
- Monetary policy can affect demand for goods and services through control over money supply and interest rates
Government Policies to Increase Demand
- Fiscal policy: increase government spending or reduce taxes to increase aggregate demand
- Monetary policy: lower interest rates to increase borrowing and spending
- Investment incentives: offer subsidies or tax breaks to encourage investment and job creation
- Public works projects: invest in infrastructure projects to create jobs and stimulate demand
- Education and training: invest in education and training programs to increase human capital and productivity
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Description
Learn about the key factors that influence demand, including price, income, prices of related goods, and tastes and preferences. Understand how these factors interact to shape consumer behavior.
