Demand

The price system's limitations sometimes lead governments to intervene in the market. Governments may set prices by establishing price ceilings and price floors that are intended to protect producers and consumers from dramatic price swings. Managing prices interferes with the normal interaction between supply and demand, however, and can maintain or even worsen market imbalances. VIDEO OBJECTIVES - Explain why governments sometimes set prices - Explain what governments try to accomplish through price floors, price ceilings, and rationing - Explain what happens when governments manage prices

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

Economists analyze price fluctuations by examining the price level, inflation, and deflation. They use both the consumer price index (CPI) and the producer price index (PPI) to measure the amount of fluctuation, estimating the pace at which the price level increases. These fluctuations can affect the purchasing power of the dollar, the value of real wages, interest rates, saving and investing, and production costs. VIDEO OBJECTIVES - Explain how economists evaluate price changes over time - Describe what causes inflation - Identify the main two price indexes that economists use to measure inflation - Explain how inflation affects the economy

Factors other than price can affect demand for a product over time, causing a shift in its demand curve. These shifts illustrate a change in demand at each and every price. Changes in any of the determinants of demand can produce an entirely new demand curve for a good or service. VIDEO OBJECTIVES - Explain what it means for a product's demand to shift - Identity and describe the factors that can shift demand for a product - Explain how substitute goods differ from complementary

To determine whether a price change is in their best interest, producers need to determine elasticity of demand. The demand for a good or service can be either elastic or inelastic. By using the total-revenue test, produces are able to make pricing decisions that will earn the most revenue. VIDEO OBJECTIVES - Define demand elasticity - Describe the difference between elastic and inelastic demand - Explain how demand elasticity is measured

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

The price system coordinates production decisions by steering producers and consumers toward market equilibrium. To reach equilibrium, producers must avoid surpluses and shortages frequently through a process of trial and error. A shift in either the demand or the supply curve can change a market's equilibrium point. VIDEO OBJECTIVES - Explain what market equilibrium is - Explain how the price system handles product surpluses and shortages - Explain how shifts in demand and supply affect market equilibrium

Fiscal policy is influenced by the schools of supply-side economics and demand-side economics, both of which pursue the goal of economic growth. The chief tools of fiscal policy are marginal tax rates, tax incentives, government spending, public transfer payments, and the progressive income tax. Fiscal planners use these tools whether they believe in supply-side theory or demand-side theory. Several limitations can limit the effectiveness of fiscal policy on the economy. VIDEO OBJECTIVES - Explain how supply-side and demand-side theories differ - Identify the chief tools of fiscal policy - Describe the factors that limit the success of fiscal policy