2.2 Demand Flashcards
Demand
The willingness and ability to purchase a good or service at the given price point in a given time period
Law of demand
The quantity demanded varies inversely with it’s price
What way do demand curves slope
DOWN
Individual demand
The demand for a good or service by an individual consumer
Market demand
The total demand for a good or service found by adding together all the individual demands
Movement along the demand curve
When the price changes, leading to movement up or down the existing supply curve
Shift of the demand curve
When the entire demand curve moves outward (right) or inward (left)
What causes a shift in the demand curve (6)
- Income
- Marketing
- Tastes/ Fashion
- Substitutes/ complements
- Economic situation-
- Price expectations- if people expect prices to rise demand will be high noe
What causes a movement along the demand curve
A change in price
What is a positive movement along the demand curve
An expansion
What is a negative movement along the demand curve
A contraction
What is price elasticity of demand
The responsiveness of quantity demanded to a change in price of a product
If PED is elastic, what is the value of the PED
-1 to -infinity
If PED in inelastic, what is the value of PED
0 to -1
If the PED is unitary elastic, what is the value of PED
-1
Elastic Demand
When the percentage change in quantity demanded is greater than the percentage change in price
Inelastic Demand
When the percentage change is quantity demanded is smaller than the percentage change in price
How do you calculate PED
Percentage Change in Quantity Demanded/
Quantity Change in Price
If a good is PED perfectly elastic, how will the demand curve look like
Horizontal
If a good is PED perfectly inelastic, how will the demand curve look like
Vertical
What are the effects of PED on consumers (3)
T, CP, DIn
- They could be affected by high levels of taxation of products they wish to buy e.g. Alcohol, Tobacco and motor fuel as consumers have inelastic demand
- Succeptible to changes in prices for goods/ services which producers know will have a higher demand. e.g Can charge more for an earlier train ticket because demand is inelastic
- If demand is inelastic, consumers are often willing to pay more for a good/ service
What are the effects of PED on producers (3)
- Can use their knowledge of PED to increase their total revenue. E.g. if they had elastic PED, they could decrease prices to increase total revenue
- Producers could charge different prices to different parts of their market e.g rail companies charging more to people who need to travel during peak times, as they have inelastic demand as they have to get to work
- Producers of raw materials have inelastic demand, so if there is an increase in supply (an abundant harvest), their price would decrease and revenue would fall. Equally if there is a decrease in supply, price would increase and revenue would increase, thus leading to more profit.
