Demand Flashcards
What is the law of demand
when the price goes down, Qty demand will go up and vice versa
What are the two things we have for demand
- demand schedule
- demand curve
The demand is curve is ______________sloping
downward sloping
Reasons for downward sloping
- substitution effect
- income effect
- law of diminishing marginal utility
define substitution effect
if the price goes down, people will want to buy more
- change in price motivates consumers to buy relatively cheaper substitute goods
if juice costs more than milk, they will buy more milk and vice versa
Define income effect
change in price affect the purchasing power of consumer’s income
- people buy more milk b/c their purchasing power has increased
- the amount you can buy with your income (each dollar) has increased and vice versa
Define the law of diminishing marginal utility
as you continue to consume and give products, you will eventually get less addition utility (satisfaction) from each unit you consume
What happens to the demand curve if something other than price changes
it will SHIFT the demand curve
If a study comes out saying milk cuases baldness how does this affect the demand curve
it would shift the demand curve LEFT
at every single price, people are going to buy less
Demand decreases when you shift LEFT
if a study comes out saying milk makes you smarter how does this affect the demand curve
it would shift the demand curve RIGHT
at every single price, people are going to buy more
Demand increases when you shift RIGHT
What are the 5 shifters of demand
- tastes/preferences
- # of consumers
- Price of related goods
- income
- expectations
Explain Tastes/preferences Ie. study shows kids having milk in the morning do better in school (what happens to the demand curve)
Demand increases
Demand curve shifts right
Number of consumers - new customers come into town, what happens to the demand curve
Demand increases
Demand curve shifts right
Price of related goods (substitutes and complements)
Almond milk and cow’s milk - substitutes
if the price goes up for almond milk what happens to the demand for cows milk?
demand for cows milk increases, shifts demand curve right
Demand for almond milk decreases, shifts demand curve left
Price of related goods (substitutes and complements)
Almond milk and cow’s milk - substitutes
if the price of cereal falls, what happens to the demand for milk
if the price of the compliment falls, demand for milk will increase
If the price of substitutes increases what happens to demand
Sub $increases = Demand for other product increases
if the price of a compliment falls, what happens to demand on compliment product
complement $ goes down= milk demand goes up
Income why is it a little tricky
a little tricky b/c depends on the type of product
What are the types of products
- normal goods
- inferior goods
What is a normal good
add definition
what is an inferior good
add defintion
When there is an increase in income what happens to the demand for a normal good
if income increases, demand for normal good increases and vice versa
When there is an increase in income what happens to the demand for a inferior good
if income increases, the demand for an inferior good will decrease and vice versa
Expectations - how do they affect the demand curve
if you think the price of milk will decrease next week, you will buy less today and vice versa
What is the difference between changes in QTY demanded vs changes in demand (Shifts)
Movement along the demand curve indicates a change in QTY demanded. As price falls, QTY increases
Shifts along the demand curve indicate a change in demand
- price does not change but people decided to buy more
(b/c of one of the 5 shifters)
What happens to demand for a product when the price goes down
demand stays the same, but QTY demanded goes up
Price is a movement along demand curve, it does not shift it
therefore there is no change in demand
