Demand Flashcards
What is the definition of demand?
Consumers must be both willing and able to buy, not just that they want it but they can also afford it at that time
What is individual demand?
Individual demand is the demand for a product by a consumer / individual
What does the law of demand state:
The law of demand states that there is an inverse relationship between quantity demanded and the price of a good or service
(as price goes up, demand goes down)
What does the law of demand state:
The law of demand states that there is an inverse relationship between quantity demanded and the price of a good or service
(as price goes up, demand goes down)
What is market demand?
Market demand is the demand of a product by all consumers / individuals in a market
What is the extension of demand?
The increase in quantity demanded (due to a fall in price)
What is a contraction in demand?
The fall in quantity demanded due to a rise in price
What are the non-price factors of demand? (hint: PASIFIC)
P opulation A dvertising S ubstitutes I ncome F ashion and trends I nterest rates / government policies C ompliment
What is an inferior good?
Goods for which the demand falls when income rises E.G if I am buying canned soup (inferior good), but when income rises I might start buying Italian soup
State the definition of normal good:
Normal goods for which the demand falls when income falls. Demand for the good rises
What are substitute goods and state an example
Substitute goods are good that can be used instead of each other, such as coke or Pepsi
Draw a demand curve, labelled:
e
How does Income affect demand?
If income rises then consumers are able to buy more goods and services at every price. If income becomes more unevenly distributed, then there will be an increase in demand for luxury good and services as the rich become wealthier. If poverty increases then the demand for a basic and cheap product is likely to rise
How do Tastes and fashion affect demand?
Over time, consumers’ tastes change and so too does fashion. People prefer to buy different or more advanced products, so demand for these products increases. For example consumers now prefer 4G smartphones to 3G phones. The result will be an increase in 4G phones and a decrease in demand for 3G phones. The fashion industry is built on persuading people to throw out last year’s clothes and buy new designs
How do substitutes affect demand?
Substitutes are goods and services that can be used in place of another good and service. If the price of one product rises then people will change to buying the other one. These can be tea of coffee, Coke and Pepsi or Barclays and HSBC banks.
How do complements affect goods?
Complements are good and services that go together, such as cars and fuel, keyboard and desktop computers, or cups and saucers. If the demand for one goes up, due perhaps to a fall in price, so too does the demand for the other
What are the 3 aspects of population that will affect demand and explain them:
Size, gender and age
If the number of people in a country increases or decreases, it is likely that the demand for most foods and services will also increase or decrease. For example, an increase in population will put more demand on health services
Change in the age of the population is also important. If a population ages si that there are more older people, it is likely that there will be an increase in demand for the type of goods they want or need. Older people may prefer cars to motorbikes or going on river cruises rather that activity holidays
If there is an increase in the number of women in a country, or in the number of women working and thus having more purchasing power, there is likely to be and increase in demand for goods women favour. This would be equally true if there were an increase in the number of men
How can the government affect demand?
The government can affect the demand for a product by imposing taxes, which take money our of firm’s and individuals’ pockets, which goes to the government, such as VAT or income tax, or subsidies that put money into firms and individuals thorough, for example, benefits.
By increase VAT on a product, such as cigarettes and alcohol,, the government aims to reduce demand. By giving a subsidy, the government hopes to increase demand, such as money for electric cars.
Draw a demand graph: how will an increase in price of cars affect the demand petrol?
It will cause an inward shift to the left (complimentary goods)
Draw a demand graph: How will an increase in population affect the demand for petrol?
It will case an outward shift to the right
Draw a demand graph: How will the rise in the transport costs of shipping oil affect the demand forpetrol?
Causes a contraction in demand to the left.
Draw a demand graph: How does a growing concern for environmental issues by the general public effect the demand for petrol?
It will cause an inward shift to the left, causing a decrease in demand
Draw a demand graph: How does the duty tax of petrol affect the demand for petrol?
It will cause a contraction in demand to the left
Draw a demand graph: How would a reduction in tax of petrol affect the demand for petrol?
An outward shift in demand to the right
How do you measure the Price Elasticity of demand?
% change in quantity demanded / % change in price
What is the definition of elastic demand?
Elastic demand is when the percentage change in quantity demanded is greater that the percentage change in price (a decrease in price from p1 to p2 leads to a larger increase in quantity from q1 to q2, showing that quantity demanded is responsive to a change in price.
What is Elastic demand in terms of PED?
Elastic demand is any number that is above but no including 1
What is the equation for percentage change?
New - Old / Old x 100
