Micro 6 - Demand Flashcards
what is the consumers aim?
to maximise utility: utility is the satisfaction gained from consuming a product.
what is a firms aim?
to maximise profit: firms are run for their owners and shareholders and profit kepps them happy.
what is the governments aim:
to maximise social welfare: they are voted by the public, so they aim to maximise their satisfaction by making decision which increase social welfare.
demand definition:
the ability and willingness to buy a particular good at a given price and given time.
Why is the demand curve downwards sloping?
the lower the price, the higher the demand
Why is more demanded at a lower price? (2 reasons)
- When price drops, people choose to buy
- People who already buy a good, choose to buy more of a good
What is marginal utility?
Marginal utility is the added satisfaction a consumer gets from having one more unit of a good or service.
What is diminishing marginal utility?
As a person consumes more of a product or service, the utility they get from it fades
How does the downwards sloping demand curve show diminishing market utility?
We buy more of a good as the price decreases as the cheaper price gives us more utility
What does a movement along a demand curve show?
A movement on the demand curve shows how quantity demanded responds to a change in price
What does an extension along the demand curve show?
An extension along the demand curve shows the increase in quantity demanded due to a decrease in price
What does a contraction along a demand curve show?
A contraction along a demand curve shows the contraction of quantity demanded as result of an increase in price
Why do shifts happen?
Non price factors
What happens when a shift happens?
More or less is demanded at any given price
Which 4 factors cause the demand curve to shift?
Income
Price of substitutes
Price of complements
Consumer preferences
What does the demand curve look like for a normal good?
What does the demand curve look like for an inferior good?
