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Three main economic theories.

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Introduction

Economic Theory In this Coursework there are three main economic theories which I am going to use and they are: Demand Demand is the quantity of goods and services that will be bought at any given price over a period of time. The Law of Demand states that the lower the price the higher the quantity demanded, and the higher the price the lower the quantity demanded. Demand is related to Price Here is an example of how price and demand are related and how it is shown on a diagram Demand Schedule Price (p) Quantity Demanded 80 1 70 2 60 3 50 4 Diagram The demand curve slopes downwards from left to the right because of the law of demand. A movement along the demand curve is caused by a change in the price itself. ...read more.

Middle

If on the other hand the price of good A falls then this will decrease the demand for the other. Therefore, if the price of good A falls then there will be a decrease in the demand of good B. This will shift the demand curve to the left from D D1. Equilibrium Equilibrium refers to a situation where there is no tendency towards change. At a point of equilibrium, producers are selling all of their output so there is no need for them to reduce their selling price. Similarly, all those people who are willing to buy the product can be accommodated by the supply available. 1. The signal sent back to the producer is that the price is too low. 2. The signal sent back to the producer is that the price is too high. 3. ...read more.

Conclusion

Price Elasticity of Demand It is abbreviated by: PED PED measures the responsiveness of changes in the quantity demanded as a result of a change in price. Formula to measure PED: % Change in quantity demanded % Change in price EXAMPLE Change in price % Change in quantity demanded % Elasticity % 10 20 2 50 25 .5 * Demand is elastic There is a relatively large response in the quantity demanded to a change in price. * Demand is inelastic There is a relatively small response in the quantity demanded to a change in price. * Demand is unitary elastic There is an equal percentage response in quantity demanded to a change in price. ...Later on it would be interesting to apply these economic theories to my coursework on Coca Cola and it will be interesting to see what I find out, for example seeing whether Coca Cola is elastic or inelastic e.t.c. My definitions and theories came from specific worksheets and a text book which I got out of my local library. ...read more.

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