Demand Flashcards
What is the law of demand?
When the price of a good rises, the quantity demanded falls
What is the substitution effect?
When consumers switch their purchases to substitutes, eg normal pizza is too expensive so buy from a different brand
What is the income effect?
When the consumers can buy less products with their income, eg fall in income means they can’t buy as much goods as before
Is the substitution effect negative or positive?
Always negative as the change in quantity demanded is opposite the change in price
Is the income effect negative or positive?
It can be negative or positive
What does a demand curve show?
It shows the relationship between the price and quantity demanded at all possible prices
What is effective demand?
When the quantity demanded is the amount that a consumer is willing and able to buy at a given price
What axis is the price on on a demand curve?
Vertical axis
What is the equation of a demand curve?
Q=a-bP
What are the determinants of demand?
Price level, income, price of other goods, the no. of customers in the market, other factors
What are the 5 types of products?
Normal and inferior products, substitutes, complements and unrelated
What happens to demand when there are normal products?
Demand increases as income increases
What happens to demand when there are inferior products?
Demand falls as income increases (for better quantity products)
What are substitutes?
Products of competitors
What does a price increase of a substitute goods cause?
It causes an increase in the quantity demanded of the good in question
