External factors play a big role in how supply and demand work in an economy. Knowing about these factors is important for understanding how markets behave.
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Economic Conditions:
- When the economy is doing well, people feel more confident and tend to buy more. For example, in the second quarter of 2021, the U.S. economy grew by 6.3%. This showed that people were spending again.
- On the other hand, when the economy is struggling, like during a recession, demand usually goes down. For instance, during the COVID-19 pandemic, the unemployment rate hit 14.8% in April 2020. Many people lost their jobs and couldn't spend money.
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Government Policies:
- When the government cuts taxes, people have more money to spend, which can boost demand for products. For example, the Tax Cuts and Jobs Act in 2017 helped middle-income families see about a 2.2% increase in their take-home pay.
- However, if the government raises taxes or adds new rules, it can make it harder for people to buy products. When tariffs were introduced in 2018, the price of steel and aluminum went up by 20%, making it tougher for manufacturers to get materials.
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Technological Advances:
- New technology can help businesses make products more efficiently, which increases the supply. For instance, using robots in factories has helped increase productivity by up to 20%, which means more products are available.
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Global Events:
- Events like natural disasters, political problems, or pandemics can mess up supply chains. For example, in March 2021, a blockage in the Suez Canal caused a huge loss of $400 million every hour in global trade, which affected the supply of many goods.
These external factors show us how the balance between supply and demand can change quickly due to many unexpected things.