demand Flashcards
what is demand?
The amount of a good or service that the consumer is willing and able to buy at various possible prices during given period of time.
what is quantity demand?
The amount of a good or service that the consumer is willing and able to buy at each particular price during a given period of time.
what are the 2 conditions of quantity demand?
• Consumer must be willing and able to buy the good or service (must not only want good or service, but have the means to pay for it).
• Demand for the item must be measured for a specific time period
what are the laws of demand?
• Income Effect
• Substitution Effect
• Diminishing Marginal Utility
what is purchasing power?
The amount of money, or income, that people have available to spend on goods and services.
– When people have more $ they purchase more goods and services.
what is the substitution effect?
The substitution effect describes the tendency of consumers to substitute a similar, lower-priced product for another product that is relatively more expensive.
what is the diminishing marginal utility?
As more units of a product are consumed, the satisfaction received from consuming each additional unit declines.
what is a demand schedule?
One useful way to show the relationship between the price of a good or service and the quantity that consumers demanded is a demand schedule. (it’s a table)
what is a demand curve?
The demand curve is another way to show the relationship between the price of a product and the quantity demanded. (it’s a graph)
what is the elasticity of demand?
The extent(how much?) that quantity demanded changes due to a price change.
Depends on the type of product and the size of the price change
what is elastic demand?
Elastic Demand exists when a small change in a good’s price causes a major, opposite change in the quantity demanded. (Small drop in price causes increase in demand.
Small increase in price causes decrease in demand.)
what are the characteristics of elastic demand?
• The product is NOT a necessity
OR
• There are readily available substitutes
OR
• The products cost represents a large portion of the consumers’ income.
what is inelastic demand?
Inelastic Demand exists when a change in a good’s price has little impact on the quantity demanded.
what are the characteristics of inelastic demand?
• The product is a necessity
OR
• There are few or no readily available substitutes for the product
OR
• The products cost represents a small portion of the consumers’ income
what causes a shift in demand?
• The passage of time allows factors other than price to influence demand significantly.
• Changes other than price will cause the curve to shift. – 5 Determinants of Demand
Why does demand change or shift?
5 Determinants of Demand
describe Consumer Tastes and Preferences
• As fads go in and out, demand for things increases and decreases
• Example: singers, actors, clothes, cars, technology
describe market size
• Bigger the market – more consumers
• Smaller the market – less consumers
• Three things affect market size
– Private business decisions
– Governments policy decisions
– New Technology
describe income
Income increase – more money to spend
• Decrease in income – less money to spend
• Different than income effect: not more purchasing power because the prices dropped
what is a substitute good? (#4: price of related goods)
change to a substitute good because of price (increase in a product’s price leads to increased demand in substitute good; decrease in price leads to decrease demand for substitute good)
what is complimentary goods? (#4: prices of related goods)
increase in a product’s price causes a decrease in demand for that product’s complementary good; decrease in price results in increased demand for complementary goods
what are consumer expectations?
Expectations can be good or bad – increase or decrease in demand because of expectations
