2.2 Demand Flashcards
• explain what is meant by demand • draw and explain a demand curve using data, including individual and market demand • draw shifts of, and movements along, the demand curve • analyse the causes and consequences for consumers and producers, of shifts of, and movements along, the demand curve • explain price elasticity of demand • draw demand curves of different elasticity • evaluate the importance of price elasticity of demand for consumers and producers
What does the term ‘demand’ mean?
The willingness and ability to purchase a good or service at the given price in a given time period.
What is the ‘law of demand’?
For most products quantity varies inversely with price.
What does the term ‘effective demand’ mean?
For demand to be effective, the consumers must be both willing (they want the product) and able (they have the means to pay) buy the product.
What does the term ‘individual demand’ mean?
The demand for a good or service by an individual consumer.
What does the term ‘market demand’ mean?
The total demand for a good or service in a given time period, found by adding together all individual demands.
How do non-price factors affect a demand curve?
It causes the demand curve to shift inwards (to the left) if there is a fall in demand or shift outwards (to the right) instead if there is rise in demand.
How does a change in price of the good or service affect a demand curve?
It causes movement along the demand curve, contraction of demand if price increases and quantity demanded decreases, or expansion of demand if price decreases and quantity demanded increases.
What 9 non-price factors cause shifts of the demand curve?
- Income
- Marketing
- Tastes and fashion
- Substitutes and complements
- Population
- Government policies
- Economic situation
- Price expectations
- Interest rates
What does the term ‘price elasticity of demand (PED)’ mean?
The responsiveness of quantity demanded to a change in the price of the product.
What does the term ‘inelastic demand’ mean?
When the percentage change in quantity demanded is less than the percentage change in price (PED value = -1 > 0).
What does the term ‘elastic demand’ mean?
When the percentage change in quantity demanded is greater than the percentage change in price (PED value = -1 > ∞).
What does the term ‘unitary elastic demand’ mean?
When the percentage change in quantity demanded is the same as the percentage change in price (PED value = -1).
What does the term ‘perfectly price elastic demand’ mean?
When the price of the product changes, the quantity demanded would be infinite (PED value = ∞).
What does the term ‘perfectly price inelastic demand’ mean?
When the price of the product changes, the quantity demanded would not be affected (PED value = 0).
How to calculate ‘price elasticity of demand (PED)’?
percentage change in price
What is the importance of ‘price elasticity of demand’ for consumers?
It can help them plan their expenditure.
What is the importance of ‘price elasticity of demand’ for consumers?
It can be used to increase total revenue from their products. When demand is elastic, the firm has to reduce its price and when demand is inelastic, the firm has to increase its price to increase total revenue
