1.2.1 : Market Demand Flashcards
What s the basic law of demand ?
Is that demand varies inversely with price - lower prices make products more affordable for consumers
What s the basic law of demand ?
Is that demand varies inversely with price - lower prices make products more affordable for consumers
What is the income effect ?
Fall in price increases the purchasing owner of customers
This allows customers to buy more with their given budget
For normal goods demend rises with an increase in incomes
What is the substitution effect ?
A fall in price of goods makes it relatively cheaper compared to substitutes
Some customers will switch to goods eating to a higher demand
Much depends n whether products are close substitutes
What are consumer objectives + decisions ?
The maximisation of private benefit from consumption
The maximisation of private benefit from working
This will be reflected in the decision making of consumers who are expected to act rationally when making choices.
What does a demand graph show ?
The relationship between price and quantity demanded can be shown using a demand curve. The demand curve shows the quantity demanded for goods , at any given price , over a period of time.
Possible relationships :
As price falls demand rises
As price rises demand falls
What are the demand influences that are a movement of the curve ?
Price - normal goods - if the price of a normal good or service increases demand for that product will decrease
Price - Veblen goods - the ‘snob effect’ where people paid more for a product as their price increased
Price - substitute goods - acts as an alternative , therefore creating competition - if the price of good A increases the demand of good B will increase
Price - complementary goods - is bought alongside a good , if the price of good A increases the demand of good B decreases
Income - inferior goods - where demand decreases as income increases
Income - giffen goods - products where demand rose as their price increased
What is movements vs shifts ?
Movements - movements up and down the price axis which has caused demand to change
Shifts - when the price stays the same but due to a sudden circumstance the demand randomly increases either positively or negatively
What are the demand influences that are shifts ?
Trends
Demographics
Seasonal changes
Advertising
External shocks
What does a shift to the left mean on a demand curve ?
Negatively impacts demand gift to the left
What does a shift to the right mean on a demand curve ?
Positive impact to demand shift to the right
