Demand Flashcards
Law of Demand
Price of good increases, quantity demanded decreases
What does the demand curve show
Quantity of a good that a buyer is willing and able to purchase
Reasons for inverse relationship of price and quantity demanded
Income effect > Price rises and incomes fall therefore less can be bought
Substitution effect > prices rise + buyers switch to sub goods which are cheaper
Law of diminishing marginal utility > Each successive unit of consumption utility increases at diminisigh rate
Movement down the curve
Extension of demand (caused by decrease in price)
Movement up the curve
Contraction of demand
(Increase in price)
(1) Determinant of demand
Real disposable consumer income
Normal goods -> demand rises when income rises
Inferior goods -> incomes rise and demand falls (only purchased as better alternatives when not affordable
(2) Determinants of demand
Price of other related goods
Subs -> fall in price of one leads to increase in QD causing a fall in demand of others
Positive relationship between price of one sub and demand of another
(2) Determinants of demand
Complements
Fall in price of one leads to increase in QD and increase in QD of other
Inverse relationship between price of complement and demand for the other
(3) Determinants of demand
Changes in consumer tastes
Things which are trendy/fashionable
Impact of advertising or positive/negative publicity can shift demand curve right
(4) Determinants of demand
Changes in size/age structure of population
Changes in seasons, income, government policy and changes in confidence
What is consumer surplus?
Difference between how much the buyer is prepared to pay for a good and what the actually pay.
Where is the total consumer surplus on a diagram?
Area between demand curve, price axis and price line
As market price rises?
Consumer surplus falls
As market price falls?
Consumer surplus rises
