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(Micro) Economics / Paper 1 > Demand > Flashcards

Demand Flashcards

1
Q

Define demand

A

The willingness and ability to purchase a good or service at the given price in a given time period

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2
Q

Define law of demand

A

Normally, the quantity demanded moves inversely with the price

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3
Q

Define individual demand

A

The demand for a good or service by an individual consumer

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4
Q

Define market demand

A

The total demand for a good or service found by adding together all individual demands.

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5
Q

Define demand curve

A

A graph showing how the demand for a product varies with changes in its price.

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6
Q

Define shift of the demand curve

A

A complete movement of the existing demand curve either inward/ to the left or outward/ to the right

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7
Q

Define movement along the demand curve

A

When the prices change (due to a change in supply) leading to a movement up or down the existing demand curve

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8
Q

Define subsidy

A

An amount of money a government gives directly to firms to encourage production and consumption

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9
Q

Define tax

A

A compulsory payment to the government

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10
Q

Define price elasticity of demand (PED)

A

The responsiveness of quantity demanded to a change in the price of the product

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11
Q

Define elastic demand

A

When the percentage change in quantity demanded is greater than the percentage change in price.

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12
Q

Define inelastic demand

A

When the percentage change in quantity demanded is less that the percentage change in price

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13
Q

Can demand for a product be affected by demand of another product?

A

Yes. For example, demand for popcorn at the cinema depends on demand for cinema tickets

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14
Q

How is price, quantity and demand linked?

A

Law of demand:
- As price falls more people can afford the product so quantity demanded increases.
- As price falls people send less money on the product so can afford to buy more

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15
Q

What does an individual demand schedule show?

A

How much that person will buy at each price. ( 30p - quantity demanded = 4, 25p - quantity demanded = 8)

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16
Q

How do you calculate a market demand curve?

A

The individual demand schedules of all consumers must be added together (500 male consumers + 400 female consumers = 900 total consumers)

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17
Q

What is a movement up the demand curve called?

A

A contraction in demand

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18
Q

What is a movement down the demand curve called?

A

An expansion in demand

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19
Q

What is a shift of a demand curve caused by?

A

Non-price factors

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20
Q

What is a movement along the demand curve caused by?

A

Change in price

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21
Q

How does an increase consumer’s in income affect demand?

A

Consumers can buy more products at every price

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22
Q

How does an increase in marketing/advertising affect demand?

A

Persuades consumers to demand more products at every price

23
Q

How does a change in taste/fashion affect demand?

A

If people prefer smartphones to notebook computers, then demand for smartphones increase

24
Q

How does a preference for a substitute affect demand?

A

If honey and jam are substitute and consumers decide to use honey, then demand for it will increase

25
Q

How does complementary goods affect demand?

A

If the price of one good falls, then demand for any good that goes with it (e.g. petrol and cars) will increase

26
Q

How does an expectation of a rise in price affect demand?

A

Consumers will buy more products now to save money in the future

27
Q

How does a rising population affect demand?

A

If population rises, so does demand for products

28
Q

How does an ageing population affect demand?

A

If the population is ageing, demand for goods suited to older people will increase.

29
Q

How does gender working patterns (e.g. more women working) affect demand?

A

If more women are working, demand for nursery places for children will increase.

30
Q

How do government policies affect demand?

A

A subsidy or a cut in tax will increase consumers’ demand

31
Q

If incomes rise faster than prices, what will happen to demand?

A

Consumers can demand more

32
Q

If a substitute is preferred, what will happen to demand?

A

Demand will decrease (even if price decreases)

33
Q

If the increase in demand allows firms to gain economies of scale, what could they do?

A

Cut prices, leading to an extension of demand

34
Q

If demand falls, what could happen to a firm?

A

It could go out of business.

35
Q

How is a movement along the demand curve caused?

A

By a change in price/supply

36
Q

If price rises and quantity decreases, what effect could this have on consumers?

A
  • Buy fewer goods
  • Buy cheaper substitutes
37
Q

If price increases and quantity decreases, what effect could this have on firms?

A
  • Sales and profits may fall
  • May need fewer workers
38
Q

If price decreases and quantity increases, what effect could this have on consumers?

A
  • Buy more and better goods
39
Q

If price decreases and quantity increases, what effect could this have on firms?

A
  • Increase supply and profit
  • Employ more workers
40
Q

How does a demand curve and price elasticity of demand link?

A

The demand curve tells us that if price falls, quantity demanded increases. Price elasticity of demand tells us the same, but by how much quantity demanded will change in response to a change in price.

41
Q

Value of price elasticity of demand = 0. What does this mean?

A

There is no change in quantity as price changes

42
Q

Value of price elasticity of demand = Between 0 and -1. What does this mean?

A

Change in quantity is less than the change in price

43
Q

Value of price elasticity of demand = -1. What does this mean?

A

Change in quantity is equal to the change in price

44
Q

Value of price elasticity of demand = Between 0 and infinity. What does this mean?

A

Change in quantity is more than the change in price

45
Q

Value of price elasticity of demand = infinity. What does this mean?

A

An infinite amount can be demanded at the given price: no change in price

46
Q

What is the overall importance of price elasticity of demand?

A

Allows consumers and producers to know what the effect of a change in demand or price will be

47
Q

What is the importance of price elasticity of demand for consumers?

A
  • If the product they buy has inelastic demand then they are likely to face price rises as suppliers can easily pass on cost increases.
  • If the product they buy has inelastic demand then the government can impose high taxes raising prices
  • Allows them to make choices if substitutes are available
  • Consumers PED may depend on factors such as the weather/ time of the year or day
48
Q

What is the importance of price elasticity of demand for producers?

A
  • Allows producers to maximise their total revenue
  • Can charge different prices to different groups of people for the same product
  • Can affect their decision whether to supply the product or not to
49
Q

If demand in elastic, what happens to price/ quantity?

A

Fall in price is small and rise in quantity is larger

50
Q

If demand in inelastic, what happens to price/ quantity?

A

Fall in price is large and rise in quantity is smaller

51
Q

If demand increases/ moves to the right - what happens to price and quantity?

A

Rises

52
Q

If demand decreases/ moves to the left - what happens to price and quantity?

A

Falls

53
Q

What is the difference between a shift of the demand curve and a movement along the demand curve?

A

A shift of the demand curve = the whole curve moves inwards or outwards

A movement along the demand curve = going up or down the curve

(Micro) Economics / Paper 1 (13 decks)

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