🎓 Determinants of Demand Beyond Price Flashcards
What is demand a function of beyond price?
Multiple conditions of demand (non-price determinants)
These include income, preferences, expectations, and external contexts.
What are the non-price determinants of demand?
- Income
- Preferences
- Expectations
- External contexts
Each of these can shift the entire demand curve.
True or False: Demand is solely dependent on price fluctuations.
False
Demand is influenced by multiple factors beyond just price.
What does a shift in the demand curve indicate?
A change in demand due to non-price determinants
This is different from movement along the curve, which is caused by price changes.
Fill in the blank: Demand is not a monolithic response to _______.
price fluctuations
It is influenced by various non-price determinants.
What is a demand function?
A mathematical representation of the relationship between the quantity of a good or service that consumers are willing and able to buy and the factors that influence that quantity
It reflects consumer behavior in relation to various economic factors.
What is the general form of a demand function?
Qd = f(P, Y, Pr, T, E, D)
Where Qd is quantity demanded, P is price, Y is income, Pr is price of related goods, T is tastes, E is expectations, and D is demographics.
What does Qd represent in the demand function?
Quantity demanded
It indicates the amount of a good that consumers are willing and able to purchase.
In the demand function, what does ‘P’ stand for?
Price of the good
Price is a key factor affecting the quantity demanded.
In the demand function, what does ‘Y’ signify?
Income
Higher income can lead to an increase in the quantity demanded for many goods.
What does ‘Pr’ represent in the demand function?
Price of related goods
Related goods can be substitutes or complements, influencing demand.
In the context of demand, what does ‘T’ refer to?
Tastes
Consumer preferences can significantly affect the quantity demanded.
What does ‘E’ indicate in the demand function?
Expectations
Expectations about future prices or income can influence current demand.
What does ‘D’ stand for in the demand function?
Demographics
Demographic factors, such as age and population size, can affect demand.
What assumption is made to isolate the impact of non-price determinants in the demand function?
Ceteris paribus with respect to price
This means assuming that all other factors remain constant while examining the effect of non-price determinants.
Fill in the blank: The demand function can be expressed as Qd = f(_____, Pr, T, E, D) when isolating non-price determinants.
Y
This highlights the role of income in affecting demand.
What causes a rightward shift in demand?
Higher income (for normal goods), positive changes in tastes, expectations of future price increases, population growth or favorable demographic changes, complement price falls
A rightward shift indicates an increase in demand.
What causes a leftward shift in demand?
Lower income (for normal goods), rise in the price of a complement, negative changes in preferences (e.g. health scares), expectations of future price falls, adverse demographic changes (e.g. decline in birth rate)
A leftward shift indicates a decrease in demand.
Fill in the blank: A rightward shift in demand is caused by _______.
higher income (for normal goods)
This is one of several factors influencing demand.
True or False: A rise in the price of a complement causes a rightward shift in demand.
False
A rise in the price of a complement causes a leftward shift in demand.
What are positive changes that can lead to a rightward shift in demand?
Positive changes in tastes, expectations of future price increases
These changes can enhance consumer interest in products.
Fill in the blank: Expectations of future price _______ can lead to a leftward shift in demand.
falls
This expectation can cause consumers to delay purchases.
List factors that lead to a leftward shift in demand.
- Lower income (for normal goods)
- Rise in the price of a complement
- Negative changes in preferences
- Expectations of future price falls
- Adverse demographic changes
These factors can decrease consumer purchasing power or interest.
Fill in the blank: Population growth or _______ changes can cause a rightward shift in demand.
favorable demographic
Increased population often leads to higher demand for goods and services.
