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Explain What Is Meant By The T - Example Papers

Explain What Is Meant By The T


erm “an economic model” and outline a model of price and output determination in a free market. Examine the effect of a change in real disposable income on equilibrium price and output.
An economic model or theory is a simplified explanation and analysis of economic behaviour. It allows us to predict, and therefore intervene, if we do not like the outcome of a possible chain of events.
Theories and models are mainly derived from past responses to similar stimuli or from statistical surveys, and this information may not always be accurate as it assumes ceteris paribus, or all other things remaining equal. For example, figures may show that the number of people smoking doubled when the price ...

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than the choice of the individual, as this varies and is difficult to surmise and predict.
A market is a place where buyers and sellers communicate for the purpose of the exchange of a good. In free market, the price of a good can fluctuate, determined by supply and demand.
When economists discuss demand, they mean effective demand, or how much people will want, and can afford to buy at any given price of a product. This means that demand is dependent on price. The graph above is a demand curve that illustrates that as price rises, demand falls. This enables movement along the curve, which we term an expansion or contraction of demand, depending on the direction of this movement. Like most economic models, it is simplified and assumes ceteris paribus that price and demand have an inversely proportional relationship. This theory does not account for goods which are nesscessities or that have few close substitutes, for whom demand may remain constant with price changes.
Similarly, ...

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demand for some goods as you have to pay more to pay off a good brought on credit when interest rates are high.
The size and structure of the population can affect demand. The demographic time bomb occurring presently may mean that future production is geared towards goods that old people have more use of. How income and wealth is distributed in society can affect demand, poor people have a need for different goods than those of the wealthy.
The factors influencing supply are less obvious, as we are mainly consumers. Costs of production are influent, for example, if they rise due to interest rates the profit margin is reduced and some firms may have to leave the market, decreasing ...

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PAPER DETAILS
Added: 8/19/2005 06:04:11 AM
Category: Miscellaneous
Type: Premium Paper
Words: 1268
Pages: 5

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