Demand Flashcards
What is a Flow Variable?
a flow variable has a time dimension—it is so much per unit of time. For example, the quantity of Grade A large eggs purchased in Edmonton is a flow variable. No useful information is conveyed if we are told that the number purchased was 2000 dozen eggs unless we are also told the period of time over which these purchases occurred. Two thousand dozen eggs per hour would indicate a much more active market in eggs than would 2000 dozen eggs per month.
What is Quantity demanded?
quantity demanded
The amount of a good or service that consumers want to purchase during some time period.
What are the two important things to know about the concept of Quantity Demanded?
- First, quantity demanded is a desired quantity. It is the amount that consumers want to purchase when faced with a particular price of the product, other products’ prices, their incomes, their tastes, and everything else that might matter. It may be different from the amount that consumers actually succeed in purchasing.
- Second, quantity demanded refers to a flow of purchases, expressed as so much per period of time: 1 million units per day, 7 million per week, or 365 million per year.
What terms do we use to distinguish between desired purchases and actual purchases?
To distinguish these two concepts, the term quantity demanded is used to refer to desired purchases, and such phrases as quantity bought or quantity exchanged are used to refer to actual purchases.
What is a stock Variable?
a stock variable is a variable whose value has meaning at a point in time. Thus, the number of eggs in the egg producer’s warehouse on a particular day—for example, 10 000 dozen eggs on September 3, 2019—is a stock variable. All those eggs are there at one time, and they remain there until something happens to change the stock held in the warehouse.
What is the bathtub analogy that helps us distinguish between stock and flow variables?
The terminology of stocks and flows can be understood using an analogy to a bathtub. At any moment, the tub holds so much water. This is the stock, and it can be measured in terms of the volume of water, say, 100 litres. There might also be water flowing into the tub from the tap; this flow is measured as so much water per unit time, say, 10 litres per minute.
The total amount of some product that consumers in the relevant market want to buy during a given time period is influenced by the following important variables:
- Product’s own price
- Consumers’ income
- Prices of other products
- Consumers’ tastes
- Population
- Significant changes in weather
But how do we analyze the distinct effect of changes in one variable when all variables are likely to be changing at once?
Since this is difficult to do, we consider the influence of the variables one at a time. To do this in our theory, we hold all variables constant except the product’s own price. Then we let the product’s price vary and study how its change affects quantity demanded. We can do the same for each of the other variables in turn, and in this way we can come to understand the importance of each variable.
What are different phrases used to describe when all other variables are constant?
Holding all other variables constant is often described by the expressions “other things being equal,” “other things given,” or the equivalent Latin phrase, ceteris paribus. When economists speak of the influence of the price of gasoline on the quantity of gasoline demanded, ceteris paribus, they refer to what a change in the price of gasoline would do to the quantity of gasoline demanded if all other variables that influence the demand for gasoline did not change.
How will the quantity demanded of a product change as its own price changes?
A basic economic hypothesis is that the price of a product and the quantity demanded are related negatively, other things being equal. That is, the lower the price, the higher the quantity demanded; the higher the price, the lower the quantity demanded.
The great British economist Alfred Marshall (1842–1924) called this fundamental relation the “law of demand.”
What is a demand schedule?
demand schedule
A table showing the relationship between quantity demanded and the price of a product, other things being equal.
What is a Demand Curve?
demand curve
The graphical representation of the relationship between quantity demanded and the price of a product, other things being equal.
The demand curve represents the relationship between quantity demanded and price, other things being equal; its negative slope indicates that quantity demanded increases when price decreases.
What is Demand?
demand
The entire relationship between the quantity of a product that buyers want to purchase and the price of that product, other things being equal.
What is the difference between Demand and Quantity Demanded?
The term demand therefore refers to the entire relationship between the quantity demanded of a product and the price of that product. In contrast, a single point on a demand schedule or curve is the quantity demanded at that point. This distinction between “demand” and “quantity demanded” is an extremely important one and we will examine it more closely later in this chapter.
What can shift the entire demand curve to a new position?
A change in any of the variables (other than the product’s own price) that affect the quantity demanded will shift the demand curve to a new position.
