1.8 Demand Flashcards
What is demand?
Demand is the quantity of a good or service purchased at a given price over a given time period
What is the law of demand?
Ceteris Paribus, as the price of a good increases, demand decreases. Conversely, as the price of a good decreases demand increases
What does a decrease in price result in and how can you show this on the demand curve?
A decrease in price results in an extension in demand. You can represent this by a MOVEMENT along the demand curve, to the right
What does an increase in price result in and how can you show this on a demand curve?
An increase in price results in a contraction in demand and a MOVEMENT along a demand curve, to the left
What is a substitute good?
They are 2 alternative products that could be used for the same purpose
What are complementary goods?
They are products that are used together
What can affect demand?
- A change in the age structure of the population can affect demand
- Advertising can affect demand
- Changes in consumer tastes/preferences can affect demand
What is the income effect?
Assuming a fixed level of income, the income effect means that as price falls, the amount the consumers can afford increases, and so the demand increases
How do you work out government spending on subsidies
Subsidy rate x quantity
How do you work out total tax revenue
Tax revenue = tax rate x quantity
What is the reason for a demand curve being downward sloping?
When the price of the good is lower, more can afford it and are willing to buy it. So consumer demand increases as the price decreases (inverse relationship)
How do changes in price affect the demand curve?
You get MOVEMENT along the demand curve, but it doesn’t SHIFT
What causes a shift in the demand curve?
Non price related factors such as PIRATES
What is PIRATES?
Population
Income
Related goods
Advertising
Tastes and fashions
Expectations
Seasons
How does population affect demand?
Larger the population, the higher the demand
