1.2.2 Demand Flashcards
Define demand.
Demand is the ability and willingness to buy a particular good at any given price
What does a change in price lead to?
A change in price leads to movement along the demand curve.
What leads to a shift of the demand curve?
Any factors which affect demand except price.
What is a movement up the demand curve known as? What is the effect on QD?
Movement up the demand curve is known as a contraction in demand. QD decreases due to a increase in price.
What is a movement down the demand curve known as? What is the effect on QD?
A movement down the demand curve is known as an extension in demand. QD increases due to a decrease in price
Define conditions of demand.
The conditions of demand are the factors which cause the demand curve to shift.
What mnemonic can be used to remember the conditions of demand?
PIRATES
What does the P stand for in PIRATES? How does this affect demand?
P stands for population.
As the population changes, demand changes in a positive accordance to that. (Increase in population= increased demand, decrease in population= decreased demand) because there are more/less people available to buy goods/services
What does the I stand for in PIRATES? How does this affect demand?
I stands for Income.
If income changes for normal goods demand will change in relation to that. (Income increases= increased demand, income decreases= decreased demand)
However, for inferior goods, it has the opposite effect. (income increases= demand decreases, income decreases= demand increases)
What does R stand for in PIRATES? How does this affect demand?
R stands for Related Goods
If goods are substitutes in increase in price for one good will lead to a decreased demand for that product but an increased demand for a substitute product.
If goods are compliments an increase in price for one good will lead to a decreased demand for that product as well as a decreased demand for the compliment product.
What does the A stand for in PIRATES? How does this affect demand?
The A stands for advertising.
If a firm carries out a successful advertising campaign, demand is likely to increase for the firm and decrease for competitor firms.
What does T stand for in PIRATES? How does this affect demand?
T stands for Taste
If something becomes more fashionable demand will increase and if it becomes less fashionable demand will fall
What does E stand for in PIRATES? How does this affect demand?
E stands for Expectations.
Expectations of what might happen in the future have an impact on the level of demand for some goods. If people expect a shortage/increased cost of something demand will increase.
If people expect the price of something to fall demand for the product will also fall as they wait for prices to decrease.
What does S stand for in PIRATES? How does this affect demand?
S stands for seasons.
Some products’ demand will be affected by the weather and therefore their demand is seasonal.
