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ECON > Demand analysis > Flashcards

Demand analysis Flashcards

1
Q

Define demand

A

In econ, demand means a desire which is backed up by willingness and ability to pay
Demand is effective desire. All desires are not demand

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2
Q

Define demand in official words

A

According to benham, the demand for anything at a given price is the amount of it, which will be bought per unit of time at that place

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3
Q

Features of demand

A
  1. Relative concept
  2. Expressed in reference to time and price
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4
Q

demand schedule

A

demand schedule is a tabular represenatation of the functional relationship between price and quantity demanded for a particular commodity

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5
Q

individual demand curve

A

individual demand curve is a graphical representation of the individual demand schedule

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6
Q

market demand schedule

A

market demand schedule is a tabular representation showing different quantities of commodity which all consumers are prepared to buy at various proces over a given period of time

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7
Q

reasons justifying downward slpoing demand curve

A
  1. Law of Dmu
    A consumer buys more when price is less
  2. Income effect
    When the price falls, a person’s purchasing power increases and therefore they buy more of the commodity
  3. Substitution good
    When the price rises, people buy more substitutes rather than the original and therefore demand falls
  4. Multipurpose goods
    When a good is multipurpose, people buy more with fall in price
  5. New consumers
    When the price falls, a new consumer class apperars that can now afford the product therefore demand increases
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8
Q

types of demand

A

1. complementary
when two or more commidities are required to satisfy a single want. eg: car and fuel
2. competitive
demand for goods which are substitues eg: sugar and honey
3. composite
demand for goods that satisfy several wants eg: electricity
4. indirect
derived demand
demand for goods required for further production i.e producer’s goods
all factors of production have indirect demand
eg: demand for workers in a mill
5. direct
*demand for consumer good which satify their wants directly.
eg: cloth, sugar, etc

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9
Q

Determinants of demand

A
  1. Price
  2. Price of substitute goods
  3. Price of complimentary goods
  4. Income
  5. Nature of product
  6. Size of population
  7. Expectations of future prices
  8. Advertisments
  9. Level of taxations
  10. Tastes, habits and fashions
  11. Other factor
  12. climatic conditions
  13. changes iin technology
  14. government policy
  15. customs and traditions
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10
Q

Intro to law of demand

A

The law of demand was introduced by Prof. Alfred Marshall in his book, Principles of Economics, which was published in 1890. The law explains the fundamental relationship between price and quantity demanded.

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11
Q

Statement of law of demand

A

According to Prof. Alfred Marshall, “Other things being equal, higher the price of a commodity, smaller is the quantity demanded and lower the price of a commodity, larger is the quantity demanded”
In other words, other factors remaining constant, if the price of a commodity rises, demand for it falls and when price of a commodity falls demand for it rises.
Thus there is an inverse relationship between price and quantity demanded.
Dx=f(Px)

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12
Q

Assumptions of law of demand

A
  1. Constant level of income
  2. No change in size of population
  3. Prices of substitue goods remain constant
  4. Prices of complimentary goods remain constant
  5. No expectations about future changes in price
  6. No change sin tastes, habits, preferences, fashions, etc
  7. No change in taxation policy
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13
Q

Exceptions

A
  1. Giffen’s paradox
  2. Habitual goods
  3. Ignorance
  4. Price illsuion
  5. Prestige goods
  6. Speculation
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14
Q

Habitual goods

A

Due to habit of consumption, certain commodities such as tea are bought in required quantities even at higher prices

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15
Q

Ignorance

A

Sometimes due to ignorance, people may buy more of a commodity even at higher price. this may happen because they are ignorant about the price of the commodity at other places.

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16
Q

Giffen’s Paradox

A

Sir robert giffen observed that inferior or low quality goods are those goods whose demand doesn’t increase even with a fall in price. sometimes, demand decreases with a fall in price

17
Q

Price illusion

A

Consumers have an illusion that high priced goods are of a better quality. therefore, demand for them increases even at higher prices. for eg: branded goods

18
Q

Prestige goods

A

Expensive goods such as gold, diamonds, etc are status symbols. therefore rich people buy more of it even at higher prices

19
Q

Speculation

A

The law of demand doesn’t hold true when people expect prices to rise even further. in this case, although the prices have risen today, consumers will demand more in anticipation of further rise in price. for eg: prices of sugar during diwali

20
Q

Variations in demand

A

When the demand for a commodity falls or rises due to a change in price alone and other factors remain constant
1) Expansion
2) Contraction

21
Q

Expansion of demand

A

Rise in quantity demanded due to fall in rise alone while other factors remain constant.
Demand moves in downward direction on the same curve

22
Q

Contraction of demand

A

Fall in demand due to rise in price alone while other factors remain constant
demand curve moves upward on the same demand curve

23
Q

Changes in demand

A

When the demand for a commodity increases or decreases due to change in other factors and price remains constant
1) Increase in demand
2) Decrease in demand

24
Q

Increase in demand

A

Increase in quantity demanded due to favourable conditions while the price remains constant
demand curve shifts to right

25
Q

Decrease in demand

A

Decrease in demand due to unfavourable changes while price remains constant
demand curve moves to the left side

26
Q

Aggregate demand

A

It refers to the total amount of sales proceeds that an entrepreneur expects from the sale of output produced at a given level of employment during the year

ECON (8 decks)

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