Macroeconomics: Cause and Effect Mechanism

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There is a definite cause and effect mechanism that causes changes in both the demand curve and in the supply curve of economics. This relationship between demand and supply is the underlying basis of economy. In fact, in market economy theories, demand and supply theory allocates resources in the most efficient manner. The demand refers to how much interest there is in the product from buyer. The following determinants cause shift in the demand curve: change in consumer tastes The cessation of a certain fad (such as the 'slinky' toy) will cause less of a demand for that toy. change in the number of buyers Fewer buyers are interested in the toy; therefore fewer buyers will require it. change in consumer incomes There may be less of a demand for the slinky to too since consumers have less disposable income. Change in the prices of complementary and substitute goods. Toys similar to the slinky (or simulations) are cheaper causing there to be less demand for the slinky. change in consumer expectations The slinky is already less innovative than when it first appeared. Consumers find it duller than previously or expect supply to be less. There is therefore less demand for the toy. Supply refers to how much of the product is on hand for purchase. The following determinants cause shift in the supply curve: Change in input prices Material that goes into producing the item may have increased or decreased in price which, in turn, effects quantity of supply of the item
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