Demand and the Demand Curve Flashcards

1
Q

Q: How is demand defined in economics?

A

A: Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.

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2
Q

Q: What is effective demand?

A

A: Effective demand occurs when consumers are both willing and able to buy a product.

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3
Q

Q: What does the law of demand state?

A

A: The law of demand states that there is an inverse relationship between price and quantity demanded. As price increases, quantity demanded decreases, and vice versa.

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4
Q

Q: How is the law of demand represented graphically?

A

A: It is represented by a downward-sloping demand curve, showing the inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis).

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5
Q

Q: What is ceteris paribus in economics?

A

A: Ceteris paribus means “all other things remain unchanged,” which allows economists to isolate the effect of price changes on demand.

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6
Q

Q: What is a contraction of demand?

A

A: A contraction of demand occurs when the price of a good increases, leading to a decrease in quantity demanded, shown by a movement up the demand curve.

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7
Q

Q: What is an extension of demand?

A

A: An extension of demand occurs when the price of a good decreases, leading to an increase in quantity demanded, shown by a movement down the demand curve.

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8
Q

Q: What are the two effects that explain the law of demand?

A

A: The income effect (as prices rise, purchasing power falls) and the substitution effect (as prices rise, consumers switch to cheaper alternatives).

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9
Q

Q: What happens when non-price factors affect demand?

A

A: Non-price factors cause the demand curve to shift either to the right (increased demand) or to the left (decreased demand) at the same price level.

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10
Q

Q: What mnemonic can help remember the non-price factors affecting demand?

A

A: The mnemonic “PACIFIC” helps remember non-price factors: Population, Advertising, Complements, Income, Fashion & tastes, Interest rates, and Substitutes.

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11
Q

Q: How does population affect the demand curve?

A

A: An increase in population shifts the demand curve to the right, while a decrease shifts it to the left.

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12
Q

Q: How does advertising affect demand?

A

A: Good advertising increases demand, shifting the demand curve to the right, while bad advertising decreases demand, shifting it to the left.

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13
Q

Q: How do substitutes affect demand?

A

A: If the price of a substitute good increases, demand for the original good rises, shifting its demand curve to the right, and vice versa.

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14
Q

Q: How does income affect the demand for normal and inferior goods?

A

A: For normal goods, an increase in income shifts demand to the right; for inferior goods, an increase in income shifts demand to the left.

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15
Q

Q: How do fashion and tastes affect demand?

A

A: If a good becomes more fashionable, demand shifts to the right, while if it becomes less popular, demand shifts to the left.

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16
Q

Q: How do interest rates affect demand?

A

A: When interest rates decrease, it becomes cheaper to borrow, increasing demand for goods like houses or cars, shifting the demand curve to the right.

17
Q

Q: How do complementary goods affect demand?

A

A: A price increase in a complementary good (e.g., printers) reduces demand for the related good (e.g., printer ink), shifting its demand curve to the left.

18
Q

Q: What does a demand curve illustrate?

(Refer to the image of the supply curve)

A

A: A demand curve illustrates the inverse relationship between price and quantity demanded, with the curve sloping downwards from left to right.

(Refer to the image of the supply curve)

19
Q

Q: What happens when the price increases from P1 to P2 on a demand curve?

(Refer to the image of the supply curve)

A

A: When the price increases from P1 to P2, quantity demanded decreases from Q1 to Q2, shown as a movement up along the curve (contraction of demand).

(Refer to the image of the supply curve)

20
Q

Q: What happens when the price decreases from P2 to P1 on a demand curve?

(Refer to the image of the supply curve)

A

A: When the price decreases from P2 to P1, quantity demanded increases from Q2 to Q1, shown as a movement down along the curve (extension of demand).

(Refer to the image of the supply curve)