demand Flashcards
what is demand defined as?
demand is the amount of goods and services consumers are willing and able to buy at a given price level
how is demand shown on a graph?
demand is shown as a downward sloping curve, labelled D
why is demand downward sloping?
demand is downward sloping because it is assumed that consumers are rational
when does an extension in demand arise?
an extension in demand arises when prices fall
when does a contraction in demand arise?
a contraction in demand arises when prices increase
what are determinants of demand
the determinants of demand are:
- changes in income
- advertising and publicity
- changes in quality
- the law
- weather conditions
- fashion
- interest rates
- consumer tastes and preferences
- prices of substitutes
- prices of complementary products
- changes in population
- consumer confidence
- uncertainty over future prices
what is composite demand defined as?
composite demand is a good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for the other purposes
what is an example of a good with composite demand?
steel has a composite demand
e.g. an increase in demand of steel for construction will decrease the supply of steel for vehicles
what is derived demand defined as?
derived demand is where the demand for one good or service comes from the demand for another good or service
what are examples of a good or service with derived demand?
the factors of production have a derived demand, the best example is labour
PED
price elasticity of demand
what is PED?
PED is the responsiveness of quantity demanded to a change in the price of the good or service
what is the formula for PED?
the formula for PED is:
% change in QD / % change in P
what do you do to the number when interpreting it?
when interpreting the number of PED, you drop the negative
what type of elasticity does a good or service have when it’s PED is above 1?
a good or service with a PED above 1 has a price elastic demand
