4.1.3.1 - The Determinants of Demand Flashcards
What is a market?
A voluntary meeting of buyers and sellers in which exchange takes place. Both buyer and seller must be willing to do the exchange.
What is a competitive market?
Markets in which large numbers of buyers and sellers possess good market information and can easily enter or leave the market.
What is ruling market price?
The price at which planned demand is equal to planned supply. (also known as equilibrium price)
What benefit do competitive markets have?
They are highly transparent.
How do households have effective demand?
They must sell their labour, the services of any capital or land they own.
What does a demand curve show?
The relationship between changing price and demand.
How does demand for a good change?
Demand for a good changes depending on the time period.
What should the x-axis on a demand curve graph actually say?
Quantity demanded per period of time.
What is market demand?
The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices.
What is individual demand?
The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices.
What is the relationship between market and individual demand?
Market demand is the sum of the demand of all consumers in a market.
What is an extension of demand?
The fall in price leading to a rise in demand for a product.
What is a contraction of demand?
The rise in price leading to less being demanded.
What is assumed when a market demand curve is drawn?
All other variables to influence demand are unchanged. ‘ceteris paribus’
What does ceteris paribus mean?
Other things being equal.
What is a condition of demand?
A determinant of demand, other than the good’s own price that fixes the position of the demand curve.
What are the main conditions for demand?
The prices of substitute goods, the prices of complementary goods, personal income, tastes and preferences, population size (therefore affecting market size).
What does a shift to the right of a demand curve show?
An increase in demand.
What does a shift to the left of a demand curve show?
A decrease in demand.
Why might a rightward shift of a demand curve occur?
An increase in the price of a substitute or a good in competing demand. A fall in the price of a complementary good or good in joint demand. An increase in personal disposable income. A successful advertising campaign. An increase in population size.
What is a substitute good?
Alternative goods that could be used for the same purpose.
What is a complementary good?
When two goods are complements, they experience joint demand.
What is a normal good?
A good for which demand rises as income rises, and demand falls as income falls.
What is an inferior good?
A good for which demand falls as income rises, and demand rises as income falls.
Must demand curves always slope downward?
No.
Why may demand curves not slope downward?
Speculative demand, goods for which consumers use price as an indicator of quality, Veblen goods.
Why does speculative demand cause demand curves to not slope downward?
For goods such as stocks, housing etc., as price increases, people may purchase these goods as they predict (speculate) that the good will further increase in price.
Why do goods for which consumers use price as an indicator of quality cause demand curves to not slope downward?
If there is a situation of asymmetric information, a buyer may choose to purchase a good that has a higher value because they believe it is of higher quality.
Why do Veblen goods cause demand curves to not slope downward?
Some people wish to consume a good such as a Ferrari as a signal of their wealth. As they cost a lot, people buy them. Companies can use advertising campaigns such as Stella Artois that said it was ‘reassuringly expensive’ to drum up sales as it attempted to become a premium brand.
