2.1 Demand Flashcards
(18 cards)
complementary goods
Goods that are jointly consumed and bought together, for example, tooth brush and tooth paste. An increase in price for one could lead to a decrease in demand of the other.
demand
The inverse relationship between the price of a good or service and the quantity demanded of that good or service, which consumers are willing and able to buy over a specific period of time, ceteris paribus
movements along demand curve
a movement along the demand curve illustrates how changes in the price of a good or service influence the quantity demanded of that good or service
shift of demand curve
a change in the demand of a good or service due to non-price determinants (factors other than price), resulting in the entire demand curve moving left (decrease in demand) or right (increase in demand).
law of demand
An economic law stating that as the price of a good falls, the quantity demanded of that good will extend, and vice versa, over a certain period of time, ceteris paribus.
inferior goods
lower-quality goods for which higher-quality substitutes are available. As consumer incomes increase, the demand for these inferior goods typically decreases, as consumers tend to shift their purchasing preferences toward the more expensive alternatives.
market demand
the total quantity of a good or service that all consumers in a market are willing and able to purchase at various price levels, calculated by summing the individual demand of each consumer at each price point for that good or service.
normal goods
a type of good for which demand increases as consumer income rises. In other words, when individuals have more income, they tend to purchase more of these goods. it is the opposite of an inferior good.
substitutes
products that can be used in place of one another because they fulfil similar needs or wants. When the price of one substitute good increases, the demand for the other substitute good typically increases as well, indicating a direct relationship between the two. (e.g. margarine and butter)
quantity demanded
the quantity demanded of a good or service that a buyer, or all buyers in a market, are willing and able to purchase at a particular price over a given time period, ceteris paribus.
Non-price determinants of demand:
are factors other than the price of a good or service that can influence the quantity demanded by consumers in a market. These determinants can shift the demand curve to the left or right, indicating an increase or decrease in demand at every price level.
○ Income
○ Tastes and preferences
○ Future price expectations
○ Price of related goods (substitutes and complements)
○ Number of consumers
related goods
products that have a relationship with each other in terms of consumer demand. the 2 types of related goods are complementary goods and substitute goods.
extension of quantity demanded
an increase in the quantity demanded of a good or service that consumers are willing and able to purchase due to a decrease in its price. This is represented as a movement downward along the demand curve.
contraction of quantity demanded
a decrease in the quantity demanded of a good or service that consumers are willing and able to purchase due to an increase in its price. This is represented as a movement upward along the demand curve.
ceteris paribus
Latin phrase meaning “all other things being equal”. It’s used when analyzing the impact of one variable on another, while assuming that all other relevant factors are held constant. This allows economists to isolate the effect of a specific variable and understand its impact more clearly.
substitution effect
the change in quantity demanded of a good when its price changes, leading consumers to substitute it with cheaper alternatives. it forms part of an explanation of the law of demand
When the price of a good or service falls relative to other goods’ or services’ prices, consumers purchase more of the good or service as it is now relatively less expensive.
income effect
The law of demand is explained by the substitution and the income effect. The income effect states that if the price of a good increases then the real income of consumers decreases and, typically, they will tend to buy less of the good—thus working in the same direction as the substitution effect.
market demand
Market demand is the total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices. It represents the sum of all individual consumers’ demand for that good or service at each price level.
