03. Demand Flashcards
What is a market?
A market is where buyers and sellers come together to carry out an economic transaction. Markets may be physical places where goods and services are exchanged for money, but there are other ways that economic transactions may be made. (i.e. online markets, credit cards, money transfers)
Identify the forms of markets.
1) Product markets, where goods and services are bought and sold.
2) Factor markets, where factors of production are bought and sold, such as the labour market.
3) Stock markets, where shares in companies are bought and sold.
What is the Law of Demand?
The Law of Demand states that quantity demanded increases when price decreases and that quantity demanded decreases when price increases. There is an inverse relationship between the two.
What is demand?
Demand is the amount of a good or service that consumers are willing and able to purchase at a given price.
What are the non-price determinants of Demand?
(RIPEN)
1) Related products
2) Income
3) Preferences and Tastes
4) Expectation of future prices
5) Number of consumers
Related products
A) Substitute goods : are goods that fulfil a similar want or need. (Coca cola and Pepsi) If the price for Coca-Cola increases, demand for Pepsi will increase because Coke drinkers will switch their demand to Pepsi.
B) Complementary goods : are those that are typically consumed together. (printer & ink) If the price of printers is low, there will be a lot of demand. People will buy printers and will therefore demand ink for their printers.
Income
If consumer incomes increase, they have more money in their pockets to spend on goods and services.
Effective demand is about being both willing and able to consume something at a certain price point. If consumers have more money, they will demand more.
Preferences and Tastes
Demand is affected by fashions. These trends constantly change.
Expectation of Future Prices
If a consumer believes that there will soon be a fall in prices, demand will decrease as consumers wait for that sale. In the weeks leading up to ‘Black Friday’ in the US, demand for electronic goods falls significantly.
Number of Consumers
If there are more consumers, demand will rise as there are simply more potential ‘demanders’.
What is meant by “ceteris paribus”?
It’s an assumption that means “all other things being equal”. This assumes that when there are a number of different factors that determine something, only one is changing and all of the others are held constant.
