Micro: Price Determination In A Competitive Market Flashcards
1
Q
What does the demand curve illustrate
A
The demand curve illustrates the relationship between quantity demanded and price
2
Q
Draw the demand curve
A
Seneca 3.1.1
3
Q
What is willingness to pay
A
Willingness to pay - desire to pay based on tastes and preferences
4
Q
What is ability to pay
A
Ability to pay - factors in a person’s income, and whether they can afford the good or service or not
5
Q
What two theories explain the relationship between price and quantity
A
Income effect
Substitution effect
6
Q
What is income effect
A
Income effect - when prices fall, consumers can afford a greater quantity of goods and services. So demand for these goods and services will increase
