Determinants of demand Flashcards
What is a demand curve?
- A demand curve shows the relationship between price and quantity demanded.
-The causes of shifts are also portrayed in the demand curve.
What is considered a ‘normal good’?
- One where, if price rises, then the demand will fall and vice versa; a negative correlation is conveyed.
What is the Rational choice theory?
-The assumption that all individuals make logical decisions that will maximise their personal benefit. For example: self-interest.
What is indicated by a movement along the demand curve?
- A change in price is always indicated.
What are the rules for drawing a demand curve?
-Label the y-axis price and the x-axis quantity.
-Draw the demand curve, downward sloping from left to right and label it demand.
-Then to find the quantity demanded at any given price, select a price, and draw a dotted line down towards the x-axis to show quantity.
What is the definition of Demand?
- Demand can be defined as the amount of a good or service that consumers are willing and able to buy at any given price.
What are the main influencing factors of demand?
-The price of the good.
-Consumer income.
-Prices of other goods and services.
-Consumer tastes and fashion.
-Other factors, like advertising.
What does the equation (qd = f(p,y,p of other goods) mean?
- qd= quality demanded
- f= is the function of
- p=price
- y=consumer income
How does the price of the good link to the quantity demanded?
-The price increasing, would lead to the quantity demand to decrease. (vice versa)
How does consumer income link to the quality demanded?
- As income of consumers increases, demand for normal goods will increase.
- This is shown by a shift to the right of the demand curve.
What is an inferior good?
-An inferior good is one where demand decreased as incomes increase.
The prices of other goods and services link to the quantity demanded?
-These will have a major impact on the quantity demanded on a product.
What is a substitute product?
- It acts as an alternative, therefore creating competition.
(Fanta for Cocacola)
What is a complementary product?
-A product which is bought alongside a good or service.
-If the price of good A increase, the demand for good B will decrease
How does Consumer tastes or fashion link to the quality demanded?
- People’s tastes change over time and demand for fashionable products changes regularly, often manipulated by advertising.
-As products become more fashionable, there is an increase in demand.
How do other factors link to the quantity demanded?
- A variety of other factors will impact the quantity demanded of a good or service including:
-population changes
-advertising
-the level of competition in the market
What happens to the demand curve, if the change in demand is caused by any factor other than price?
- The demand curve shifts.
- An increase in demand is shown by a shift to the right.
-A decrease in demand is shown by a shift to the left.
What are the factors that cause a shift in the demand curve include?
-Changes in the price or availability of substitutes.
-Changes in the price or availability of complements.
-Changes in consumer income.
-Changes in taste.
What is the definition of complements?
-The products that are bought alongside another product.
What does ‘ceteris paribus’?
-This means that ‘all other factors remain the same’.
What are Veblen goods?
-A special type of good identified by Veblen.
-Veblen is an American Economist (1857-1929), who identified a ‘snob’ effect, were people paid more for certain products as their price increased.
-He believed that this was due to the increased status that buying higher priced goods conferred on the buyer.
What is an inferior good?
-Where demand increase as incomes increase.
What is a Giffen good?
- Scottish Economist Sir Robert Giffen identified certain inferior products where demand rose as prices increase.
-These products where call the Giffen goods.
-The demand for a factor of production that results from the demand for the product that it is used to make.
What is the law of demand?
-When the price of a good rises, the quantity demanded will fall.
