Demand Flashcards
What is effective demand?
Demand supported by the intention and ability to buy
What is latent demand?
Willingness to buy but not yet ability to buy
What is joint demand?
Demand for one good is closely linked to the demand for another
What is competitive demand?
Two or more goods that are close substitutes for each other
What is derived demand?
When demand for one product drives the demand for another
What is Composite demand?
A good is demanded for more than one use
What is individual demand?
Consumer demand for a good or service
What is market demand?
All consumer demands in the market summed together
What is the law of demand?
As price falls, the quantity demanded increases and vice versa
How is the demand curve structured?
It slopes downwards to the right
What does the downward movement in the demand curve mean?
It means that there is an extension in the quantity demanded due to a fall in price of the product
What does the upward movement in the demand curve mean?
It means that there is an contraction in the quantity demanded due to a rise in price of the product
What causes shifts in the demand curve?
- Change in tastes or preferences
- Change in incomes
- Changes in the prices of complements or substitutes
- Change in size or structure of the population
- Change in interest rates
- Changes in the law
- Changes in expectations
Why does the demand curve slope downwards?
- Substitution effect:
Consumers substitute in favour of the good that becomes relatively cheaper
- Real income effect:
If the price of a good falls, the consumer buying the good will gain purchasing power and this extra income available for spending can be used to purchase more of the good
What is ceteris paribus?
All other influencing factors remain constant.
The demand curve is drawn ceteris paris, which means all other factors affecting demand such as income or tastes are held constant
What is total utility?
The total statisfaction the consumer gets from purchasing units of a good. Rational consumers aim to maximise their total utility.
What is marginal utlity?
The change in total utility from consuming an extra unit of a product
What is the law of diminishing marginal utility?
As a consumer buys and consumes more units of a good, the extra statisfaction gained diminishes. This means at higher quantities, consumers are less willing to pay a higher price.
