Determinants of demand Flashcards

1
Q

demand

A

Quantity of a good/service consumers are willing and able to buy of a given price in a given time period

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2
Q

Contraction of demand

A

If price moves up, quantity contracts

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3
Q

factors impacting demand

A

Population
Quality of product/fashion
Advertising
Consumer incomes
substitutes
interest rates
complementary products

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4
Q

Substitutes

A

A good with the same purpose as another good e.g. Coca Cola and Pepsi: if the price of Coca Cola goes up, we switch and buy Pepsi instead

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5
Q

interest rates

A

the cost of borrowing money

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6
Q

how do interest rates affect demand?

A

If interest rates go up, people are less willing to borrow money to consume goods, so increasing interest rates will shift the demand curve to the left

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7
Q

examples of complementary products

A

car and petrol, Iphone and iPhone charger

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8
Q

normal goods/services

A

if our incomes go up, we demand more of them, but if our incomes go down, we demand less. They help shift the demand curve to the right and left rather smoothly

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9
Q

Normal goods examples

A

Disneyland, revision books, trainers

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10
Q

inferior goods

A

Goods where, if our income goes up, we demand less of it , as we go for better quality goods instead

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11
Q

Giffen goods

A

Goods violating the law of demand(if prices go up, we demand more of it, but if prices go down, we demand less of it)

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12
Q

Examples of giffen goods

A

An expensive Mona Lisa painting,
Vintage cars

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13
Q

Law of Demand

A

An inverse relationship between price and quantity demanded. As price increases, quantity decreases and vice versa

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14
Q

Close substitutes

A

Pepsi and Coca Cola

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15
Q

Substitutes that aren’t very close

A

A bike and BMW

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16
Q

Price-elasticicity of demand

A

The responsiveness of the quantity demanded to the changes in price

17
Q

Price-inelastic demand

A

If the goods and services don’t respond to changes in prices, no substitutes for these products

18
Q

Perfectly price-elastic demand

A

The price remains the same, no matter the quantity

19
Q

PED=

A

Percentage change in demanded quantity/percentage change in price

20
Q

Examples of price inelastic products

A

Petrol

21
Q

Perfectly competitive market

A

A market where the price is set by the market

22
Q

Are necessities price elastic or price inelastic?

A

Price inelastic(people will buy these goods no matter what the price)

23
Q

What’s more price elastic - inferior or normal goods?

A

Inferior goods

24
Q

Why is the PED always negative?

A

When the price decreases, quantity demand increases

25
Q

What does it show if the price elasticity of demand is negative?

A

When the price rises, the demand falls

26
Q

If the PED is greater than 1..

A

The demand is price elastic

27
Q

If the PED is less than 1..

A

The demand is price inelastic

28
Q

If the PED is 0…

A

The demand is perfectly price inelastic

29
Q

If the PED is infinity…

A

The demand is perfectly price elastic

30
Q

If the PED is 1..

A

The demand is unit price elastic(the proportion of price changes is equal to the proportion of quantity changes).

31
Q

Price elastic demand

A

If the goods and services respond to changes in price

32
Q

How does price elasticity of demand help businesses in the real world?

A

When they are planning how to price their goods in a shop

33
Q

Total revenue=

A

Quantity of products sold x price

34
Q

Factors that determine whether demand for a good/service is elastic or inelastic:

A

Number of substitutes
Percentage change of income
Luxury/necessity
Addictive/Habit formations
Time period

35
Q

How does time period impact elasticity?

A

In the short run, products are price inelastic, as well as the factors of production(Labour, Land,Capital).
In the long run, products become more price elastic