2.2 Demand Flashcards

1
Q

What is demand ?

A

demand is the willingness and ability of a buyer in a market to purchase a good or service at a given price in a given period of time

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2
Q

What is effective demand ?

A

a buyer must be willing and able to buy at a given price to be considered part of effective demand in a market

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3
Q

What is the law of demand ?

A
  • the quantity demanded will usually increase as price falls, and the quantity demanded will usually fall as price increase, ceteris paribus
  • it Indicates an inverse relationship between price and quantity demanded
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4
Q

What makes up the demand function ?

A

The demand function indicates the quantity demanded depends on demand conditions:
- price of the product
- income of the buyer
- price of substitute products
- price of compliments
- tastes and preferences of buyers
- expectations of buyers
- all over time

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5
Q

What is price elasticity of demand

A
  • Price elasticity of demand (PED) measures the responsiveness of quantity demanded of a good/service to a change in price
  • PED = %change in QD/ %change in Price
  • PED is almost always negative
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6
Q

What is the income (+wealth) effect ?

A
  • income effect - the effect of a change in price on quantity demanded arising from the buyer becoming better or worse off as a result in a change in price
  • an increase in price leads to buyers becoming worse off as their income now buys less, this is likely to lead to a contraction in demand
  • a decrease in price in price leads to buyers becoming better off as their income buys more leading to an extension in demand
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7
Q

What is the substitution effect ?

A
  • the substitution effect is the effect of a change in price on quantity demanded arising from the consumer switching to or from, alternative products as a result of a change in price
  • rise In Price leads to consumers being more likely to switch to buying a substitute good, leading to a contraction in demand
  • a decrease in price has the opposite effect
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8
Q

What do different PED’s look like on the demand curve ?

A
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9
Q

What does a shift in the demand curve show ?

A
  • A shift to the right of the demand curve, shows an increase in quantity demand at any price, as a result in a change of a non-price factor
  • A shift to the left of the demand curve, shows a fall in quantity demanded at any price, as a result in a change of a non-price factor
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10
Q

What are normal goods ?

A
  • products that have a positive relationship between income and quantity demanded are called normal goods, (QD increases with an increase in income)
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11
Q

What are inferior goods ?

A
  • some products have a negative relationship between income and quantity demanded, these are called inferior goods ?
  • QD falls with an increase in income, visa versa
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12
Q

What is competitive demand ?

A

competitive demand, demand for goods that are in competition with each-other - substitutes are in competitive demand (bus and rail)

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13
Q

What is joint demand ?

A

joint demand - goods which are interdependent / demanded together

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14
Q

What is the law of diminishing marginal utility ?

A
  • the law of diminishing marginal utility states that as more units of a good are consumed, successive units will bring a smaller additional utility
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