Demand: Think Like a Buyer Flashcards
A graph, plotting the quantity of an item that someone plans to buy, at each price.
Individual Demand Curve
A commonly used qualifier noting your conclusions may change if some factor that you haven’t analyzed changes. (In Latin, it’s ceteris paribus.)
“Holding Other Things Constant”
The tendency for quantity demanded to be higher when the price is lower.
Law of Demand
A price change causes movement from one point on a fixed demand curve to another point on the same curve.
Movement Along the Demand Curvr
The change in quantity associated with movement along a fixed demand curve.
Change in the Quantity Demanded
A movement of the demand curve itself.
Shift in Demand Curve
A shift of the demand curve to the right.
Increase in Demand
- Income
- Preferences
- Prices of related goods
- Expectations
- Congestion and network effects 6. The type and number of buyers
. . . but not a change in price.
Six Factors Shift the Market Demand Curve
A good for which higher income causes an increase in demand.
Normal Good
A good for which higher income causes a decrease in demand.
Inferior Good
Goods that go together. Your demand for a good will decrease if the price of a complementary good rises.
Complementary Goods
Goods that replace each other. Your demand for a good will increase if the price of a substitute good rises.
Substitute Goods
When a good becomes more useful because other people use it. If more people buy such a good, your demand for it will also increase.
Network Effect
When a good becomes less valuable because other people use it. If more people buy such a product, your demand for it will decrease.
Congestion Effect
PEPTIC:
Preferences
Expectation
Price of related goods
Type and number of buyers
Income
Congestion and network effects
Things that Shift the Demand Curve Area
Higher income increases the demand for normal goods, but decreases the demand for inferior goods.
Income
Demand for particular
goods can increase or decrease as your desire for those goods change. Can be changed by trends, advertising, changing lifestyles, and countless other factors. Advertisers will try to increase your demand for their products. Social pressure can also shift demand curves.
Preferences
Demand will increase if the price of substitute goods rises, or the price of complementary goods falls. Demand will decrease if the price of substitute goods falls, or the price of complementary goods rises.
Prices of Related Goods
If prices are expected to rise, today’s demand will increase; if prices are expected to fall, today’s demand will decrease.
Expectations
If a good with network effects becomes more popular, demand will increase. If a good with congestion effects becomes more popular, demand will decrease.
Congestion & Network Effects
Demand will increase due to population growth, immigration, or access to new international markets. Demographic change can also shift demand. This factor only affects market demand curves, not individual demand.
Type & Number if Buyers
