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
How does income cause demand curve to shift?
Income increases,
So demand increases,
Demand curve shifts to the right,
QTY Demanded increases from Q1-Q2
How does the price of substitutes cause the demand curve to shift? (cars, holidays)
Increase in price of Good A causes an increase in demand for Good B.
Demand curve for Good B shifts right.
QTY demanded of good B shifts from Q1-Q2
How does the price of complements cause the demand curve to shift?
Increase in price of Good A leads to a decrease in demand for Good B.
Demand curve for Good B shifts left.
QTY demanded of good B decreases from Q1 - Q2
How does consumer preferences cause the shift in demand curve?
Popularity of a good increases. increasing the demand for the good.
Good’s curve shifts to the right
QTY demanded shifts from Q1 to Q2
What is a normal good?
A good which demand increases as income increases - luxury goods
What is an inferior good?
An inferior good is a good whose demand decreases when consumer income rises- cup noodles
What does the demand curve look like for a normal good?
What does the demand curve look like for an inferior good?
