Demand Flashcards
Define effective demand
Demand refers to when a consumer is willing and able to purchase a good
Define latent demand
Latent demand is a consumer’s want for a good which they cannot afford to buy or is uninformed about the goods
What is quantity demanded?
Quantity demanded is the amount of a good or service that a consumer is willing and able to purchase during a given period of time
What is the law of demand?
The law of demand states that as the price of a good increases, the quantity demanded for the good will decrease; price and quantity demanded have an inverse relationship
Differentiate between a change in quantity demanded and a change in demand
A change in quantity demanded is a movement along the demand curve caused by a change in price. A change in demand is a shift in the demand curve caused by any factor besides price.
What do the movements along the demand curve mean?
A downward movement along the demand curve means that there was a decrease in price and an increase in quantity demanded
What do the shifts of the demand curve mean?
If the demand curve shifted to the left there was a decrease in demand and if it shifted to the right there was an increase in demand
List some non price determinants of demand
price of related goods
availability of substitutes
seasonal factors
advertising
bandwagon effect
preferences
income
What is the equation for quantity demanded?
Qd= a - bP
Define consumer surplus
Consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay
What are the price elasticity of demand interpretations?
perfectly elastic- PED=infinity
relatively elastic- PED between 1 and infinity
unitary- PED=1
relatively inelastic- PED between 0 and 1
perfectly inelastic- PED=0
What are the determinants of PED?
- percentage of income spent on the good
- the definition of the good
- the degree of necessity of the good
- the number of uses of the good
- time period
- number of substitutes
