1.2.2 - Demand Flashcards
Define demand
the quantity of a good or service (consumers are willing and able to purchase) purchased at a given price over a given time period
What does a demand curve show
relationship between price and quantity demanded; at any given point along the curve, it shows the quantity of the good or service that would be bought at a particular price
What is a movement along a demand curve caused by
changes in price
What is a shift of a demand curve caused by
Changes in non-price factors known as the conditons of demand
State and outline the conditions of demand that can cause a shift of the demand curve
- changes in age structure of the population
- changes in real income (increase in income increases demand)
- advertsing (successful advertising campaigns can increase demand)
- changes in consumer tastes/preferences can affect demand
- changes in the price of substitute/complementary goods
Why does the demand curve slope downwards
higher the price charged for a good, the lower the quanitity demanded
- consumers aim to pay lowest price possible for goods and services
- as price decreases, consumers are more willing and able to pay for a good or service
Define substitute
Goods that are alternative to each other (beef and lamb) - an increase in price of one good will decrease demand for it and increase demand for its substitutes
Two alternative goods that could be used for the same purpose
Define complementary goods
goods that are often used together - so they are joint in demand
- if price of strawberries increases, demand for strawberries and cream will decrease
What is the concept of diminishing marginal utility
The Law of Diminishing Marginal Utility states that if the consumption of a good or service increases, the satisfaction derived gradually increases but at a decreasing rate, to the point where it reaches zero
How does the law of marginal utility affect the shape of the demand curve
The marginal utility they get will therefore influence their willingness to pay for something.
- if marginal utility decreases with each extra good consumed, then the price a consumer is willing to pay for each extra good decreases
- hence individual demand curve slopes downards
What is the income effect
assuming a fixed level of income, income effect states that as a price falls, the amount that consumers can buy with their income increases and so demand increases
What is the subsititution effect?
A fall in the price of a good makes it relatively cheaper than other goods so consumer will increase demand for the cheaper goof and reduce demand for the more expensive good
