Demand Flashcards
What is demand in economics?
Demand is the quantity of a good or service that consumers are willing and able to purchase at various prices.
What does ‘allocative efficiency’ mean?
Allocative efficiency occurs when resources are distributed in such a way that maximizes consumer satisfaction.
Define ‘derived demand’.
Derived demand refers to the demand for a good or service that arises from the demand for another good or service.
What is ‘competitive demand’?
Competitive demand refers to the demand for goods that are substitutes for each other.
True or False: Inelastic demand means that quantity demanded changes significantly with a price change.
False
What does ‘elastic demand’ indicate?
Elastic demand indicates that quantity demanded changes significantly in response to price changes.
Fill in the blank: If the price elasticity of demand is greater than 1, demand is considered ___.
elastic
Fill in the blank: If the price elasticity of demand is less than 1, demand is considered ___.
inelastic
What is the formula for calculating price elasticity of demand?
Price elasticity of demand = (% change in quantity demanded) / (% change in price)
What does it mean if demand is perfectly inelastic?
Perfectly inelastic demand means that quantity demanded does not change regardless of price changes.
What is an example of a good with elastic demand?
Luxury goods often have elastic demand.
What is an example of a good with inelastic demand?
Necessities like insulin for diabetics typically have inelastic demand.
True or False: The demand curve for elastic goods is steeper than that for inelastic goods.
False
What effect does a decrease in price have on total revenue for a product with elastic demand?
Total revenue increases.
What effect does a decrease in price have on total revenue for a product with inelastic demand?
Total revenue decreases.
What factors can affect the elasticity of demand?
Availability of substitutes, necessity vs luxury, proportion of income spent on the good, and time period considered.
Define ‘unitary elastic demand’.
Unitary elastic demand occurs when the percentage change in quantity demanded is equal to the percentage change in price.
What is the relationship between price and total revenue for elastic demand?
In elastic demand, price and total revenue move in opposite directions.
What is the relationship between price and total revenue for inelastic demand?
In inelastic demand, price and total revenue move in the same direction.
How does time affect the elasticity of demand?
Demand tends to be more elastic in the long run than in the short run.
What is ‘cross-price elasticity of demand’?
Cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a price change of another good.
What does a positive cross-price elasticity indicate?
A positive cross-price elasticity indicates that the two goods are substitutes.
What does a negative cross-price elasticity indicate?
A negative cross-price elasticity indicates that the two goods are complements.
True or False: The demand for a good is always elastic.
False
