Demand Flashcards
What is demand?
It is the amount of a commodity consumers are willing and able to buy, at a given price over a given period of time.
What is the law of demand?
The law of demand states that: Everything being equal, the higher the price the lower the quantity demanded, and the lower the price the higher the quantity demanded
Given that all the factors affecting demand are constant what is the generic demand function?
Qd = a - bp
where
Qd = quantity demanded,
p = price of the commodity
a, b are provided constants
What is a demand schedule?
It is a table that shows the different quantities of a commodity consumers are willing and able to buy at different prices of that commodity.
What is a demand curve?
A demand curve is a graphical representation of a demand schedule.
with price on the y-axis
and Quantity demanded on the x-axis
What is market demand?
It is the horizontal summation of individual demand curves
Differentiate between a change in demand and a change in quantity demanded. (with the help of graphs)
A change in quantity demanded is a movement along the same demand curve usually caused by a change in price, if this movement is towards the left it is called a contraction, while if it is towards the right it is called an extension. (draw an example graph here)
A change in demand, on the other hand, is the shift of a demand curve from its original position to a new position, this shift is caused by factors other than price. (draw an example graph here).
What are some factors that affect demand?
Acronym: PPIFA
Changes in:
Price of a commodity
Price of other goods
Income
Fashion taste,
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Goods that affect that do not respect the typical demand curve, are divided into two, those whose curves are regressive at the top and those whose curves are regressive at the bottom. Explain these two sets.
Regression at the Top:
Goods of Ostentation:
These are goods whose quantity demanded increases with an increase in price i.e. Luxury goods
Goods whose prices are expected to increase in the future:
The quantity demanded of these goods increase as their prices increase because consumers are afraid to pay more for the same good in the future at prefer to buy at its current price.
Regression at the bottom:
Inferior goods:
The quantity demanded for these goods falls as their prices fall, as consumers feel like their income has increased and buy the superior alternatives of these goods
Goods whose prices are expected to fall in the future:
Consumers will not buy these goods even as the price falls, as they intend to only buy them once their price has dropped to the lowest possible level
What are the types of demand that exist?
Acronym: John Corleone Curses Dricus
Joint demand: This is when the demand for one product leads to the demand for another e.g cars and petrol
Competitive demand: This involves goods that are substitutes for each other, an increase in the price of one will lead to an increase in demand for the other. e.g meat and fish
Composite demand: It involves goods used for multiple purposes. An increase in the demand for the good for one purpose will lead to a decrease in the quantity of the good for its other purposes. e.g milk used for drinking and making cheese
Derived Demand:
Similar to joint demand it is when an increase in the demand for one good leads to an increase in the demand of another, but this type the other good is not demanded for its direct use but as a way of obtaining the former good. e.g leather shoes and leather
State and explain 3 factors that affect the price elasticity of demand.
-> Alternatives: The more alternatives a product has the more its demand is elastic as consumers can move from one alternative to another
-> Necessity: The is a lower possibility for consumers to cut back on necessary goods causing their demand to be inelastic
-> Time period: Demand is more elastic for products as time passes as consumer purchase behavior also changes with time
