1.2.2 - demand Flashcards
What is effective demand?
Not just a want but a willingness and ability to buy a product.
What is utility?
The satisfaction derived from the consumption of a good or service.
What is marginal utility?
The additional utility derived from the last unit.
What is diminishing marginal utility?
More of any good/service increases total utility but the utility gained by the consumption of each additional unit will diminish.
What does the demand curve show?
How much will be bought at each and every price. It slopes downwards since consumers will only be tempted to buy more of a good/service if the price is lowered.
What is the law of demand?
It explains the inverse relationship between price and quantity demanded
What causes a movement along the demand curve?
Changes in price.
Lowering price causes an extension in quantity demanded and increasing price causes a contraction in quantity demanded.
What factors of demand cause shifts in the demand curve?
T - trends
R - rate of interest
I - income
P - price of other goods (complements and substitutes)
A - advertising
How does the demand curve shift for increases and decreases in demand?
Increase in demand - shift to the right
Decrease in demand - shift to the left
How does rate of interest affect the demand curve?
Higher interest rates decrease consumer spending so demand curve shifts to the left
How does income affect the demand curve?
Higher real income shifts demand curve to the right for normal goods. For inferior goods, demand shifts to the left as consumers switch to better quality products.
What are substitutes?
Alternatives that satisfy a similar need/want.
How does the price of substitutes affect the demand curve?
Decreased price of a substitute decreases demand (left shift) as consumers switch to a more affordable alternative.
What are complements?
They are products that are often consumed together and are in joint demand.
How does the price of complements affect the demand curve?
Decreased price of a complements increases demand (right shift) for the product
How does advertising affect the demand curve?
Positive advertising persuades consumers to buy more, shifting demand to the right.
How does a successful advert affect the PED?
It makes the PED more inelastic. Positive perceptions facilitate brand loyalty making quantity demanded less responsive to changes in price since consumers are less sensitive.
What is derived demand?
The demand for a commodity etc. which is a consequence of the demand for something else eg. labour
What is a shift in the demand curve?
A shift is caused by non-price factors and changes the amount demanded at each and every price level
How does diminishing marginal utility impact the shape of the demand curve?
As a consumer buys more of a good, the marginal utility gained diminishes. Therefore a higher quantities, consumers are less willing to pay a higher price, explaining the downward sloping curve, and the inverse relationship between price and quantity.
