LS8 - Demand Flashcards
What is demand?
Demand is the quantity of a good or service purchased at a given price over a given time period
Why is the public sector less efficient than the private sector?
The public sector is generally less efficient than the private sector because firms in the private sector face competition and wish to maximise profits. This gives firms an incentive to minimise costs and produce in an efficient manner
Why do consumers fail to make rational decisions?
Consumer Inertia, Behaving Habitually, Consumer Weakness to Computation, Lack of Time, Lack of Information, Lack of Ability to Process Information
What does the law of demand state?
As the price of a good increases, quantity demanded decreases; conversely, as the price of good decreases, quantity demanded increases
What does decrease and increase in price result in the demand curve?
A decrease in price results in an extension/expansion in demand. We can represent this on a diagram by a movement along a demand curve.
An increase in price results in a contraction in demand. We can represent this on a diagram by movement along a demand curve
What are substitute and complement goods?
Substitute goods are two alternative products that could be used for the same purpose
Complement goods are products that are used togehter
What does shortage typically lead to?
Shortages typically lead to higher demand
What factors cause a shift in demand?
A change in the age structure of the population
Changes in income affect demand, in general an increase in income will lead to a rise in demand
Advertising can affect demand (successful/unsuccessful)
Changes in consumer taste/preferences can affect demand
How to substitute goods affect demand?
If consumers are rational and a substitute becomes cheaper, a consumer will switch to this consumer good, so demand for the original good decreases
How does complement goods affect demand?
If a complement good is expensive, it decreases the demand for the corresponding complement good
How do changes in the age structure impact demand?
As a population grows older, demand on services like healthcare may increase as they require more support
How does income effect demand?
An increase in incomes leads to an increase in demand as consumers have a greater disposable income which allows demand to increase
How does advertising effect demand?
Successful advertising can increase demand by influencing more people to buy a good or service
How does changes in consumer taste/preferences effect demand?
If a certain good or service is preferred over another, the demand for one good or service will decrease, as the other increases
