Chapter 3: Demand Flashcards
Define demand
The quantity of a good or service that consumers are willing and able to buy given its price, the price of other goods, and consumers’ incomes and preferences
Name 4 influences on demand
- The price of the good
- Your income
- The price of other goods
- Your preferences
What can market demand be seen as?
The total quantity of a good or service that all potential buyers are willing and able to buy at any given price in a given period of time
Define joint demand
Demand for goods that are interdependent such that they are demanded together
Define composite demand
Demand for a good that has multiple uses
Define competitive demand
Demand for goods that are in competition with each other
Give an example of joint demand
Printers and ink cartridges
Give an example of composite demand
Water
Complements relate to…
Joint demand
Substitutes relate to…
Competitive demand
Define ceteris paribus
A Latin phrase meaning ‘all other things being equal’ - it is used in economics when we focus on changes in one variable while holding other influences constant
Define law of demand
A law that states there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
Define demand curve
A graph showing how much of a good will be demanded by consumers at any given price
Explain the substitution effect
If the price goes up, consumers may find other goods more attractive and choose to buy something else
Draw 2 diagrams…
- A shift in the demand curve
- A movement along the demand curve
Figure 3.2
What causes a movement along the demand curve?
A change in price
What shifts the demand curve
Any non-price factors
Explain snob effects
Some people may value certain goods more highly simply because their price is high, especially if they know that other people will observe them consuming these goods
Define normal good
One where the quantity demanded an increase in response to an increase in consumer incomes
Define inferior good
One where the quantity demanded decreases in response to an increase in consumer incomes
Give an example of a normal good
Foreign holidays
Give an example of an inferior good
Bus journeys
Define substitutes
Two goods are said to be substitutes if consumers regard them as alternatives so that the demand for one good is likely to rise if the price of the other good rises
Define complements
Two goods consumed jointly, so that an increase in the price of one good causes demand for the other good to fall
Define consumer surplus
The value that consumers gain from consuming a good or service over and above the price paid
Draw a diagram illustrating consumer surplus
Figure 3.8
What does the demand curve show?
The valuation that consumers place on a good reflecting the satisfaction they gain from consuming it
