Carlson and Marco Macchiavelli Abstract: During the financial crisis, the Federal Reserve established two emergency facilities for broker-dealers. One provided collateralized loans. The other lent securities against a pledge of other securities, effectively providing collateral upgrades, an operation similar to activities traditionally undertaken by broker-dealers.
Price of the Product There is an inverse negative relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price.
This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease.
However, for some goods the effect of a change in income is the reverse. For example, think about a low-quality high fat-content ground beef. You might buy this while you are a student, because it is inexpensive relative to other types of meat.
But if your income increases enough, you might decide to stop buying this type of meat and instead buy leaner cuts of ground beef, or even give up ground beef entirely in favor of beef tenderloin. If this were the case that as your income went up, you were willing to buy less high-fat ground beefthere would be an inverse relationship between your income and your demand for this type of meat.
There are two important things to keep in mind about inferior goods. They are not necessarily low-quality goods.
Also, whether a good is normal or inferior may be different from person to person. A product may be a normal good for you, but an inferior good for another person. Think about two goods that are typically consumed together. For example, bagels and cream cheese.
But if we want fewer bagels, we will also want to use less cream cheese since we typically use them together. Therefore, an increase in the price of bagels means we want to purchase less cream cheese.
We can summarize this by saying that when two goods are complements, there is an inverse relationship between the price of one good and the demand for the other good.
On the other hand, some goods are considered to be substitutes for one another: For example, for some people Coke and Pepsi are substitutes as with inferior goods, what is a substitute good for one person may not be a substitute for another person.
If the price of Coke increases, this may make Pepsi relatively more attractive. The Law of Demand tells us that fewer people will buy Coke; some of these people may decide to switch to Pepsi instead, therefore increasing the amount of Pepsi that people are willing and able to buy.
We summarize this by saying that when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the other good. The Tastes and Preferences of Consumers This is a less tangible item that still can have a big impact on demand. For example, if a celebrity endorses a new product, this may increase the demand for a product.
For example, if you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you and other consumers may decide to wait to buy an iPod until the new product comes out.
When people decide to wait, they are decreasing the current demand for iPods because of what they expect to happen in the future. Similarly, if you expect the price of gasoline to go up tomorrow, you may fill up your car with gas now. So your demand for gas today increased because of what you expect to happen tomorrow.
This is similar to what happened after Huricane Katrina hit in the fall of Rumors started that gas stations would run out of gas. As a result, many consumers decided to fill up their cars and gas cansleading to long lines and a big increase in the demand for gas.
This was all based on the expectation of what would happen. The Number of Consumers in the Market As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers in general are willing and able to buy.
In the summers, when less students are taking classes, the demand for their product will decrease because the number of consumers in the area has significantly decreased.Up to a scale factor, the dynamic effect on unemployment of demand disturbances is a mirror image of that on output.
The effect of supply disturbances on output increases steadily over time, to reach a peak after two years and a plateau after five years. The Medical Services Advisory Committee (MSAC) is an independent non-statutory committee established by the Australian Government Minister for Health in Identify the existing effect of the economic factors on Aggregate demand and supply.
They conclude that: · Fuel consumption elasticities are greater than traffic elasticities, mostly by factors of to 2. · Long run elasticities are greater than short run, mostly by factors of 2 to 3.
· Income elasticities are greater than price, mostly by factors of to 3. They conclude that i f the real (inflation adjusted) price of fuel rises by 10% and stays at that level, the.
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