demand and demand curve Flashcards
demand defintion
the quantity of purchases that are willing and able to buy at a given time
how does the income effect lead to a downsloping curve
a fall in price = higher purchasing power of consumers = more being able to by with a budget = demand rises and real income increases
how does the substitution effect lead to a downsloping curve
fall in good x price = cheaper compared to substitutes = higher demand for x
how does the law of diminishing marginal utility lead to a downsloping curve
the value that consumers gain from a product reduces as number consumed increases, hence a lower price is paid
what are the conditions of demand?
changing prices of substitutes in competitive demand
changing prices in complements ei, joint demand
change in real income of consumers
changes in the distribution of income
the effects of advertising and marketing
sixe and age structure of a population
social and emotional factors
what is the paradox of value?
- Paradox of Value: Also known as the Diamond-Water Paradox. Explores the contradiction between market value and practical utility.
- Example: Water vs. Diamonds: Water is essential for life but has a low market price. Diamonds, with limited practical use, often have a higher market value.
- Use Value vs. Exchange Value: Use value is the practical utility or necessity of a good, while exchange value is the market price determined by supply and demand.
- Factors Influencing Value: Rarity (scarce items may have higher exchange value) and perception (aesthetic or cultural factors can influence value).
- Highlighted by Adam Smith: Classical economist who discussed this economic paradox.
what is derived demand
a factor of production used to produce another good or service
what is composite demand
has more than one use, as in milk can be used for cheese
giffen goods
inferior, stable quality good ei potatoes
