Cross elasticity of demand (XED) measures the percentage change in quantity demand for a good after a change in the price of another. For example: if there is an increase in the price of tea by 10%. and the quantity demanded for coffee increases by 2%, then the cross elasticity of demand = 2/10 = …
Demand deficient unemployment occurs when there is insufficient demand in the economy to maintain full employment. In a recession (a period of negative economic growth) consumers will be buying fewer goods and services. Selling fewer goods, firms sell less and so reduce production. If firms are producing less, this leads to lower demand for workers …
Demand for labour is a derived demand. This means it depends on demand for the product the worker is producing. If there is an increase in demand for visiting coffee shops, it will lead to an increase in demand for baristas (people who make coffee) The demand for labour will also depend on labour productivity, …
Derived demand occurs when there is a demand for a good or factor of production resulting from demand for an intermediate good or service. Example – mobile phones and lithium batteries The rise in demand for mobile phones and other mobile devices has led to a strong rise in demand for lithium. Lithium is used in …
Readers Question: Evaluate the importance of knowing YED in a firm’s decision-making process. Knowing the YED of a product may help a firm respond to changing economic situations and help the firm to plan ahead. If a firm is producing inferior goods Demand will increase during periods of recessions and economic downturns. Therefore, in …
The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, …
A deflationary spiral occurs when falling prices cause further deflationary pressures to cut prices. Deflation creates expectations of further price falls, and therefore consumers reduce their spending because they expect goods to become spending in the future. This fall in spending creates further deflationary pressure in the economy. Deflation increases the real value of debt. …
The current US administration is proposing tax cuts which ‘The Committee for a Responsible Federal Budget’, estimates it will include $5.8 trillion of total tax cuts over the decade and a net cost of $2.2 trillion through 2027. The problem with these tax cuts It is unclear how these tax cuts will be financed. An …