Demand Flashcards
State the Law of Demand:
Price and quantity demanded have an inverse relationship
State the 2 reasons of the inverse relationship of Demand:
- Income Effect –> Price falls, Real Income rises. Consumers are able to buy more with their income.
- Substitution Effect –> Price falls, goods/services become more attractive to buy compared to substitute/replacement
Definition of Effective Demand
The willingness and ability for consumers to buy a good/service
Change in quantity demanded:
- Movement along the curve
- Caused by a change in price
Change in Demand
- A shift of the demand curve
- Caused by a change in a non price factor
Non-price factors of demand (7):
- Popularity
- Disposable Income
- Age distribution
- Substitute goods
- Complementary goods
- Weather
- Advertisements
Definition of Substitute goods:
Goods that can replace each other
Definition of Complementary goods:
Goods that are usually bought together
Definition of Inferior goods:
Goods/services bought by low-income households. As income rises, demand for it falls.
Definition of Normal goods:
Goods/services bought more as income rises
Definition of Veblen goods:
Status good which are bought more as price rises. High price reflects higher social status.
Definition of intermediate good:
Good that is required to produce another good (usually a raw material). When one good is in demand another good is needed to produce that good.
Definition of Joint demand:
The demand for complementary goods.
Extenstion in demand
an increase in the quantity demanded for a product caused by a fall in its price
Contraction in demand
a decrease in the quantity demanded for a product caused by a rise in its price
