Demand Flashcards
Demand
the quantity of a good or service that a consumer is willing and able to buy at each and every price level
The law of demand
there is an inverse relationship between the price of a good and demand
results of an increase in prices on the quantity demanded
contraction of quantity demanded
results of a decrease in prices on the quantity demanded
expansion of quantity demanded
result of change in price on a demand curve
movement along the line
result of change in non-price determinants on a demand curve
shift inwards/outwards
reasons for the inverse relationship/shape of demand curve
-income effect
-substitution effect
-the law of diminishing marginal utility
income effect
a fall in prices increases the real purchasing power of consumers, allowing people to buy more with a given budget
substitution effect
a fall in the price of one good makes it relatively cheaper compared to substitutes. some consumers will switch to this good, leading to higher demand
the non-price determinants of demand
Population
Adverts
Substitute goods (price of)
Income
Fashion/trends
Interest rates
Complementary goods (price of)
total utility
the total satisfaction from a given level of consumption
marginal utility
the change in satisfaction from consuming an extra unit
Normal goods
goods that experience an increase in demand due to an increase in income
e.g. new cars, designer clothes
inferior goods
when following an increase in income, less of the good is purchased
e.g. own brand products, public transport
derived demand
the demand for a factor of production used to produce another good or service
composite demand
where goods have more than one use- an increase in the demand for one product leads to a fall in supply of the other
Joint demand
when the demand for one product is directly and positively related to market demand for a related good or service . Two complements are said to be in joint demand
competitive demand
when the demand for one product is directly and negatively related to market demand for a good or service. Two substitutes are said to be in competitive demand
joint supply
where an increase or decrease in the supply of one good leads to an increase/decrease in supply of a by-product
