1.2.2 Demand Flashcards
What is demand?
The ability and willingness to buy a particular good at a given price and at a given moment in time
What is a movement along the demand curve caused by?
A change in the price of a good
- (Backward movement - contraction in demand due to increase in price)
- (Forward movement - extension due to decrease in price)
What is a shift in the demand caused by?
A change in any of the factors which affect demand, the conditions of demand
- (Leftward shift - decrease in demand as fewer goods are demanded at each and every price)
- (Rightward shift - i crease in demand as more goods are demanded at each and every price)
What are the conditions of demand?
Factors which cause the demand curve to shift (PIRATES)
1. Population (^ Population = ^D)
2. Income (^Income = ^D)
3. Related goods (Complements/substitutes: change in price of another good can cause shift in D)
4. Advertising (^successful ad = ^D)
5. Taste/fashion (^Fashionable = ^D)
6. Expectations ( Expectations of what might happen in future can have impact on D)
7. Seasons (D affected by weather)
- Government legislation can also have an effect on the demand for goods (e.g. D for car seats increased after government made it a legal requirement that young children have to sit in them)
What can be used to explain the demand curve sloping downward, showing the inverse relationship between price and quantity?
The law of diminishing marginal utility
What is marginal utility?
Represents the change in satisfaction resulting from the consumption of the next unit of a good
What does the Law of Diminishing Marginal Utility state?
That the satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed, assuming the consumption of all other goods remains constant
How does the Law of Diminishing Marginal Utility explain the demand curve sloping downwards?
If more of a good is consumed, there is less satisfaction derived from the good.
This means that consumers are less willing to pay high prices at high quantities since they are gaining less satisfaction.
