LS8 - Demand Flashcards
What does demand refer to?
The quantity of a good or service purchased at a given price over a given time period
What is the law of demand?
Ceteris Paribus, as the price of a good increases, quantity demand decreases, and vice versa
How does a decrease in price affect demand?
It creates an extension / expansion in demand
How does an increase in price affect demand?
It creates a contraction in demand
How do you represent extension / contraction of demand on a graph?
Movement along the demand curve
What are substitute goods?
2 alternative products which can be used for the same purpose
What are complement goods?
2 products which work together / are used together
What factors affect demand?
Changes in income Price of substitute / complement goods Population size Advertising Tastes / preferences
How does population size affect demand?
If the population is higher, there will be more people who will demand the product, but if the population is lower then there will be less people who demand the product
How does advertising affect demand?
Advertising can increase demand as it can influence more people to want the product
How does taste / preference affect demand?
A product which appeals to more people with that preference has a higher demand as more people want the product
How does changes in income affect demand?
A higher income will result in a higher demand as more people have the money to spend on products
How would you show a change in quantity on a demand curve graph?
Move the curve in shifts
What type of demand does the demand curve show?
Effective demand
What is effective demand?
Demand which shows how much would be bought at any given price, and not how much consumers would buy if they had unlimited resources
How does the number of substitute goods affect the demand of original goods?
If the number of substitute goods increases, then the demand of the original good decreases as there are more alternatives
How does the number of complement goods affect the demand of the original good?
If the number of complement goods increases, then the demand of the original good increases as there is more reason for consumers to purchase the product as it works with the other complement good
What is the law of diminishing marginal utility?
The value or utility that individual consumers gain from the last product consumed falls the greater the number consumed.
What is consumer surplus?
The difference between how much buyers are prepared to pay for a good and how much they pay
Why does the demand curve point downwards and right?
Because price and quantity demanded are inversely proportional
