2.1 The determinants of demand for goods and services Flashcards
Define demand ?
the quantity of a good or service consumers are willing and able to buy at a given price in a given time period
What is the law of demand?
Theres an inverse relationship between price and quantity demanded
How do price factors of demand affect the demand curve?
It causes a contraction or an extension in demand
What is a contraction in demand?
A fall in quantity demanded resulting from an increase in price
What is an extension in demand?
An increase in the quantity demanded resulting from a fall in price
what are two reasons for the downward slope of the demand curve?
The income effect and the substitution effect
What is the income effect?
As price goes up our incomes can not stretch as far therefore, we are less able to buy
What is the substitution effect?
As price goes up other goods and services become more price competitive therefore, we switch our demand to buying those goods and services.
What are conditions of demand?
A determinant of demand other than the goods own price
(PASIFIC)
State the factors (conditions of demand) affecting demand?
- Population/age structure
- Advertisements/availability (scarcity)
- Substitutes
- Income
- Fashion/trends/taste
- Interest rates
- Compliments price
How do conditions of demand affect the demand curve?
They shift the whole curve either to the left or right
What is a substitute?
A good that can be used in place of another good
Whats is a compliment good?
Goods brought and used together
What is an inferior good?
ones that see a fall in demand as income rises
(i.e unbranded goods)
What are normal goods?
Ones that see an increase in demand as income rises
(i.e branded goods)
