1.2.2 - Demand Flashcards
What is demand?
Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a give time period.
What is the law of demand?
Price and Quantity demanded, are inversely related
As price increases Quantity demanded falls
As price falls Quantity demanded rises.
What are the 3 types of demand?
Effective demand
Latent demand
Derived demand
What is effective demand?
A desire to buy the product is backed up by a willingness and ability to pay.
What is latent demand?
Often known as potential demand where there is a desire to buy the product by consumers often lack purchasing power. Affected by advertising.
What is derived demand?
The demand for product x might be linked to the demand for related product y rising idea of derived demand e.g demand for steel is strongly linked to demand for a car.
What is the effect of price on demand?
Rise in price causes a contraction in demand
Fall in price causes an expansion in demand
What are the conditions of demand?
Income - More income consumers have the more they are prepared to pay shift to the right. Fall in income demand decreases shifts to left
Price of other goods - Price of other goods like substitutes e.g. an increase in the number of alternatives may result in a decrease in demand
Changes in population - An increase in population is likely to lead to an increase in demand for goods demand curve shifts to right
Changes in fashion/trends - Products become more or less desirable due to fashion
Advertising - If a firm carries out an adveritising campaign, demand is likely to increase, if a compeititor firms carries out a successfull advertising campaign demand is likely to fall for their good
Changes in interest rates - Changes in interest rates many products are bought on credit using borrowed money demand is sensitive to the rate of interest
What is the effect of a movement or shift in the demand curve?
A movement along the demand curve is caused by a change in the price of a good. A shift in the demand curve is caused by a change in any of the factors which effect demand the conditions of demand
What is total utility?
Total utility represents the satisfaction gained by a customer as a result of their overall consumption of a good.
What is Marginal utility?
Marginal utility represents the change in satisfaction of the next consumption of the same good.
What is the Law of diminishing Marginal utility?
The law of marginal utility states that the satisfaction derived from the consumption of an additional unit of a good will decrease as more good is consumed. assuming consumption of other goods remain constant.
Why does the demand curve slope downwards because of marginal utility?
Demand curve slopes down as more good is consumed less satisfaction derived from the good consumers less willing to pay higher prices at higher quantities since they are gaining less satisfaction
