1.2.2 Demand Flashcards

1
Q

define demand

A

the quantity of a good or service that consumers are willing and able to purchase at a given price over a given period of time

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2
Q

how is demand different to wants

A

demand is a want backed up by the ability to pay - effective demand

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3
Q

what is latent demand

A

when there is a willingness to buy among people for a good or service, but where consumers lack the purchasing power to be able to afford the product

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4
Q

describe the relationship between price and quantity demanded

A

inverse/negative

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5
Q

what assumption is made when deciding the relationship between price and quantity demanded

A

ceteris paribus

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6
Q

what are the two reasons for the relationship between price and demand

A

income effect and substitution effect

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7
Q

explain the income effect

A

as the price of a product falls, the consumer has more income left (real income has increased) that enables them to buy more of the good

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8
Q

explain the substitution effect

A

as the price of the product falls, consumers switch into the cheaper product away from more expensive substitutes, increasing demand

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9
Q

what are the four types of demand

A

derived demand, joint demand, composite demand, competitive demand

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10
Q

explain derived demand, giving an example

A

demand that arises due to demand for another product e.g demand for cars increases demand for steel

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11
Q

explain joint demand, giving an example

A

demand for goods which are interdependent, such that they are demanded together e.g toothbrushes and toothpaste

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12
Q

explain composite demand, giving examples

A

demand for a good that has multiple uses e.g land, steel, oil

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13
Q

explain competitive demand, giving examples

A

demand for goods that are in competition with each other e.g chocolate, crisps

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14
Q

define total utility

A

represents the satisfaction gained by a consumer as a result of their overall consumption of a good

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15
Q

define marginal utility

A

represents a change in satisfaction resulting from the consumption of the next unit of good

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16
Q

what is the law of diminishing utility

A

as a person consumes more units of a particular good or service while keeping the consumption of other goods constant, the marginal utility gained from each extra unit will decrease

17
Q

explain how the hypothesis of diminishing marginal utility supports a downward sloping demand curve

A
  • consumers generally seek to maximise their overall satisfaction when making consumption choices
  • as they consume more, extra satisfaction they gain from each extra unit becomes smaller
  • this means they are willing to pay less for each subsequent unit of a good (provides them with less satisfaction) and are willing to buy more of a good when the price is lower because the reduction in price makes each additional unit more valuable in terms of the satisfaction it provides
18
Q

when is total utility maximised

A

when a consumer consumes the quantity of that product where the marginal utility is zero

19
Q

what will happen if the utility gained from the consumer is greater than the price and why does this support the downwards sloping demand curve

A

they will keep on consuming, so a rational consumer will keep on consuming until MU=P
therefore the demand curve is downward sloping because at high prices there are fewer situations where MU>P, so there will be less demanded at that price and the opposite is true at lower prices

20
Q

what causes a movement along the demand curve

A

changes in the market price of the product

21
Q

give the analysis for a contraction in demand

A

a rise in price from p to p1 is shown by a movement along the demand curve with quantity demanded falling from q to q1 - a contraction in demand

22
Q

give the analysis for an expansion in demand

A

a fall in price from p to p1 is shown by a movement along the demand curve with quantity demanded rising from q to q1 - an expansion in demand

23
Q

what causes the demand curve to shift

A

non-price factors

24
Q

what are the non-price factors causing a shift in demand

A

population
advertising
price of substitutes
incomes/state of the economy
fashion and trends
interest rates and government policies
price of complements

25
explain how population causes a shift in demand
increased population leads to and increase in total demand - outward shift
26
explain how advertising causes a shift in demand
better and more advertising increases awareness of the product and people are more persuaded to buy, leading to an increase in demand - outward shift
27
explain how the price of substitutes causes a shift in demand
an increase in the price of substitutes causes an increase in demand for the original product - outward shift
28
explain how income causes a shift in demand
for a normal good, increased real income increases demand for an inferior good e.g public transport, value branded goods, an increase in real income decreases demand
29
explain how fashion and trends causes a shift in demand
if it is in fashion then increases demand - outward shift
30
explain how interest rates causes a shift in demand
decreased interest rates increase demand as the cost of borrowing and reward for saving is lower, this is especially true for goods bought on credit e.g car
31
explain how the price of complements causes a shift in demand
a decrease in the price of complements increases demand - outward shift