If there is spare capacity (negative output gap), then demand side policies can play a role in increasing economic growth. For example if we decrease interest rates, we will increase the demand in the economy as people have more money as their mortgage costs are decreased. It is the same idea with lowering taxes - this will boost demand, as people have more money to spend as less is taken away from them by the government. Aggregate demand is made up of consumption (consumer spending, Investments Government spending and Exports (minus) imports (Net exports). If anything affects these factors will result in affecting the demand.
In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services). At the same time, the government may choose to cut taxes, which will indirectly affect the aggregate
2) Volume-Oriented * Sets prices In order to maximize dollar or unit sales volume. This objective sacrifices profit margin In favor of high product turnover. 3) Market Demand * Sets prices In accordance with customer expectations and specific buying situations. This objective is often known as "charging what the market will bear." 4) Market share * Designed to increase or maintain market share regardless of fluctuations in industry sales.
There are a number of factors effecting price elasticity of demand, the overriding determinant being the availability of substitute goods to the consumer, the more that are made available, the higher the elasticity is likely to be as buyers can easily switch from one product to another. Necessity of the good or product is another factor, the more necessary the product is to the consumer the lower elasticity as they will attempt to purchase no matter how much the price fluctuates. Brand loyalty, consumer income, along with peak and off peak pricing are also contributory factors of PED. The price elasticity of demand tells us what happens to total revenue when price changes. When demand is inelastic, a rise in price leads to a rise in total revenue and when demand is elastic total revenue rises when price falls.
The Price Elasticity of Demand is also commonly known as just price elasticity it measures the rate of response of quantity demanded due to a price change. The formula for calculating price elasticity of demand is: Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or
This is an effect of a lower opportunity cost as the overall cost associated with borrowing has decreased and the marginal benefit of saving has increased, meaning consumers will receive more of a benefit if they purchase goods on credit based agreements opposed to saving, leading to an increase in the amount of credit transactions. This leads to consumer expenditure increasing significantly, meaning more goods are being consumed. Therefore, as consumer expenditure is a component of the aggregate demand formulae an increase in consumption would thereby lead to an increase in aggregate demand. However that said, an increase in consumption largely depends on the consumers’ marginal propensity to consume (MPC) and the overall confidence of consumers. Therefore, if MPC and consumer confidence is at a low, consumers will spend less and save more therefore resulting in a decrease in total consumption levels.
Capitalism is a liberal-market system: an economic system based on the private ownership of the means of production and distribution of goods, characterized by a free competitive market and motivation by profit. Capitalism has three essential features: 1. Private ownership- where individuals own land, machines, and factories. 2. Marketing competition- competing with one another, where the own decide what the price is and what product is produce.
In socio-economic perspective, a market is said to be an institution ensures the exchange of products and goods among buyers and sellers. Increase and decrease in price indicates the market function. It’s a natural and neutral process of exchanging goods among sellers and buyers according the current demand. When price becomes high suppliers are happy to supply the good, whereas consumers wait for the price to come down. If price become equilibrium, market is said to be cleared.
At last, achieve aggregate demand and aggregate supply to be an ideal balance. Monetary policy is divided into two types: expansionary and tightening. Aggressive monetary policy is to stimulate aggregate demand by increasing the speed of the money supply growth. In this policy, it is easier to obtain the credit, and the interest rates will reduce. Therefore, when the aggregate demand compared with the economic production capacity is quite low, expansionary monetary policy should be taken into use appropriately.
There are four competing Business, Government, and Society (BGS) models, the Market Capitalism model, the Dominance model, the Countervailing Forces model and the Stakeholder model. The purpose of these models are simplified descriptions of the Business, Government and Society relationship. According to the Market Capitalism Model business operates within a market environment and responds primarily to the powerful economic forces. There are many important assumptions regarding this model. Some of the key assumptions include slight government interference in the economy, consumers are able to make decisions because they are informed about the products they are looking to purchase and the price of the products and banks and laws exist for the sole purpose of easing commerce.