1.2.2 Demand Flashcards
What is demand?
Demand is the amount of a good/service that a consumer is willing and able to purchase at a given price in a given time period.
What is a demand curve?
A demand curve is a graphical representation of the price and quantity demanded (QD) by consumers. A contraction is up the demand curve (higher price/less quantity). An extension is down the curve (lower price/higher quantity).
What is the law of demand?
The law of demand captures this fundamental relationship between price and QD. It states that there is an inverse relationship between price and QD
/When price rises the QD falls
/When prices fall the QD rises
What 6 factors can cause a demand curve to shift either left or right?
/Changes in real incomes
/Changes in tastes and fashions
/Advertising and branding
/Changes in price of substitutes
/Changes in price of complimentary goods
/Changes in population and distribution
What is marginal utility?
Marginal utility is the additional utility (satisfaction) gained from the consumption of an additional product.
How do you calculate total utility?
To calculate total utility, the marginal utility of each unit consumed is added together. This means that total utility keeps increasing even while marginal utility is decreasing.
What does the law of diminishing marginal utility?
The Law of Diminishing Marginal Utility states that as additional products are consumed, the utility gained from the next unit is lower than the utility gained from the previous unit.
