Introducing demand Flashcards
What is demand?
The quantity of product that consumers are willing and able to purchase at various prices over a period of time
what is effective demand?
Quantity of goods and services that consumers are actually buying at the current market prices
How does the relationship between price of a product and the demand for that product work?
As the price of a good changes, the demand of that good will change in the opposite direction- it is an inverse relationship
What do we assume in the relationship between price and demand?
Ceteris parbus- the change in demand is caused only by a change in price, not by other factors
What is rationality
rational customers wish to maximise satisfaction by correctly choosing how to spend their limited income- hard for people to be rational with limited information about products
What are exceptional goods?
certain goods that have ‘snob appeal’ and businesses set high prices so that only exclusive customers have access. If they put the price down, demand may fall with it as the existing customers feel its less exclusive- this goes against the inverse relationship between price and demand.
