Micro:Demand Flashcards
Define demand
The quantity consumers are willing and able to buy at a given price in a given time period
When we define demand we are talking about ______ demand
effective
When is demand effective?
Only when demand for a product is backed up by a willingness and ability to pay the market price does demand become realised or actual
what does potential/latent demand mean?
Deman that is not yet expressed within a market
What do movements along the curve indicate a change in?
Changes in market price
A higher price leads to a ____________ in quantity demand
Contraction
A lower price leads to an ___________ in quantity demanded
Expansion
Expansion means a move up/down the demand curve
down
Contraction means a move up/down the demand curve
up
Name the 3 effects which mean that the demand curve is loping.
- Income effect
- Substitution effect
- Law of diminishing marginal utility
Explain how the Income effect creates a downwards-sloping demand curve.
-A fall in price increases the real purchasing power if consumers
-This allows people to buy more with a given budget
-For normal goods demand rises with an increase in real income
Explain how the Substitution effect creates a downwards-sloping demand curve.
-A fall in the price of good X makes it relatively cheaper compared to substitutes.
-Some consumers will switch to good X leading to higher demand.
-Much depends on whether products are close substitutes
Explain how The law of diminishing marginal utility creates a downwards-sloping demand curve.
-The value/utility that individual consumers gain from the last product consumed falls the greater the number consumed
-Hence they are willing to pay a lower price
Define marginal utility
The change in total satisfaction from consuming an extra unit of a good or service
What does diminish mean in the term ‘the law of diminishing marginal utility’ ?
Beyond a certain point, the marginal utility may start to fall/diminish
