Demand and the Demand Curve Flashcards
Q: How is demand defined in economics?
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.
Q: What is effective demand?
A: Effective demand occurs when consumers are both willing and able to buy a product.
Q: What does the law of demand state?
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.
Q: How is the law of demand represented graphically?
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).
Q: What is ceteris paribus in economics?
A: Ceteris paribus means “all other things remain unchanged,” which allows economists to isolate the effect of price changes on demand.
Q: What is a contraction of demand?
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.
Q: What is an extension of demand?
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.
Q: What are the two effects that explain the law of demand?
A: The income effect (as prices rise, purchasing power falls) and the substitution effect (as prices rise, consumers switch to cheaper alternatives).
Q: What happens when non-price factors affect demand?
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.
Q: What mnemonic can help remember the non-price factors affecting demand?
A: The mnemonic “PACIFIC” helps remember non-price factors: Population, Advertising, Complements, Income, Fashion & tastes, Interest rates, and Substitutes.
Q: How does population affect the demand curve?
A: An increase in population shifts the demand curve to the right, while a decrease shifts it to the left.
Q: How does advertising affect demand?
A: Good advertising increases demand, shifting the demand curve to the right, while bad advertising decreases demand, shifting it to the left.
Q: How do substitutes affect demand?
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.
Q: How does income affect the demand for normal and inferior goods?
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.
Q: How do fashion and tastes affect demand?
A: If a good becomes more fashionable, demand shifts to the right, while if it becomes less popular, demand shifts to the left.