2.1 DEMAND Flashcards
Demand
The ability and willingness to purchase a quantity of a good or service at a certain price.
Market
Where people who want to purchase a good, service, or resource can exchange with those who can provide that same service or resource. (Not always a physical place.)
Law of Demand
An inverse relationship between price and quantity demanded. (As the price of a good rises, the quantity demanded will usually fall & vice versa.) Higher price=Lower quantity demanded.
Causes for The Law of Demand
Income Effect
Substitution Effect
Law of Diminishing Marginal Utility
Income Effect
As prices fall, the amount consumers money is worth increases. (Purchasing power increases for consumers.)
Substitution Effect
As prices fall, the product becomes more attractive. (Consumer will purchase more of the cheaper product by substituting it for the more expensive product.)
Law of Diminishing Marginal Utility
The more you buy of any good the less satisfaction you get from each new unit. (When you receive less satisfaction, you stop buying.)
Change in Quantity Demanded
Any change in the price of a product moves along the demand curve.
Change in Demand
When the entire demand curve shifts. Something other than price has caused a change to the demand curve.
Name the 5 Shifters of Demand
- Income
- Price of Related Goods
- Tastes and Preferences
- Number of Consumers
- Future Expectations
Income
The amount of income people have or changes in their income can influence the demand for a good or service. (Normal goods- As income increases, demand increases. Inferior goods- As income decreases, demand increases, usually less expensive goods.)
Related Goods
When goods are related in some way, a change in the price of one will result in a change in the demand for the other. (Complementary Goods- Two goods that are usually used together. Substitutes- Two similar goods.)
