test Flashcards
What is demand?
Demand is the quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time.
What is an extension in demand?
When the price of a good or service decreases, a larger quantity is demanded of the good or service.
What is a contraction in demand?
A contraction in demand is when the price or good of a service increases, the quantity demanded of the good decreases.
How does population shift the demand curve?
The larger the population, the higher the demand.
How does income shift the demand curve?
If consumers have more disposable income, they are able to afford more goods, so demand increases.
How does a consumer’s wealth affect their demand for a good?
Consumers mostly spend more as they believe their wealth could increase, on the other hand, consumers might spend less when they believe their wealth could decrease.
How can substitutes shift the demand curve?
If the price of a substitute falls, the quantity demanded of the original good will fall because consumers will most likely switch to the cheaper option.
How can complementary goods shift the demand curve?
If the price of one good increases, the demand for this goods complementary good will decrease, because fewer people will be buying the good.
How does advertising shift the demand curve?
By advertising, the consumer loyalty towards the good and will increase demand.
How do tastes and fashions shift the demand curve?
The demand curve will shift if consumer tastes change, for example, if the demand for physical books fall, as a result of consumers preferring to read e-books.
What is the price elasticity of demand?
PeD is the responsiveness of a change in demand to a change in price.
What does it mean when PeD is greater than 1?
Price elastic. A change in price leads to an even bigger change in demand.
What does it mean when PeD is less than 1?
Price inelastic. Demand is unresponsive to a change in price.
What does it mean when PeD = 1?
Unitary elastic. Change in demand is equal to the change in price.
What does it mean when PeD = 0?
Perfectly inelastic. Demand does not change when price changes.
