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ECONS > Theory of demand > Flashcards

Theory of demand Flashcards

1
Q

Reason of change in Demand

A

Non-price determinants

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2
Q

How is change in Demand represented?

A

By shift of the demand curve

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3
Q

What causes change in quantity demanded ?

A

Changes in price

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4
Q

What is changes in quantity demanded represented by?

A

Movement of a point along the demand curve

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5
Q

Change in Quantity demanded

  1. Fall in price leads to ______ in QD, represented by _______ movement
  2. Rise in price leads to ______ in QD, represented by _______ movement
A
  1. Fall in price leads to increase in QD, represented by downward movement
  2. Rise in price leads to decrease in QD, represented by upward movement
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6
Q

How is the increase in demand represented by the curve?

A

Rightward shift

(QD increases as well)

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7
Q

How is decrease in Demand shown in the demand curve and what happens to QD?

A

Leftward shift

(QD decreases)

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8
Q

Definition of Demand

A

The amount of good or service that consumers are both willing and able to buy at each possible price in a given period of time, ceteris paribus

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9
Q

Assumptions in Demand

A
  1. Given period of time
  2. Ceteris Paribus - the assumption that every other variable that affects the demand of a good or service (eg. income, consumer tastes and preferences, price expectations etc) remains constant
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10
Q

Demand is represented by…

A

The demand curve

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11
Q

Quantity demanded is represented by…

A

A point given on the demand curve

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12
Q

What is the Law of Demand?

A

It states that in a given time period, the quantity demanded of a product is inversely related to it’s price, ceteris paribus

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13
Q

Example of Law of Demand

The higher the price of a good or service, CP, the ____ willing and able consumers are to buy it, hence the ______ the quantity demanded.

A

The higher the price of a good or service, CP, the less willing and able consumers are to buy it, hence the smaller the quantity demanded.

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14
Q

Reason for Law of Demand

A

Law of Diminishing Marginal Utility (LDMU)

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15
Q

Definition of Law of Diminishing Marginal Utility (LDMU)

A

It states that beyond a certain point of consumption, as more and more units of a good or service are consumed, the additional utility derived from each additional unit consumed will fall.

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16
Q

Individual demand

A

Demand of one customer

17
Q

Consumers income (normal and inferior goods)

A
18
Q

Definition of normal goods

A

Good whose demand varies directly w consumers income

19
Q

Definition of inferior goods

A

Goods whose demand varies inversely with consumers income

20
Q

Consumers income (normal goods)

A
  1. income increase
  2. purchasing power increase
  3. consumers willing and able to buy at each and every price
  4. Demand increases

When consumer income increases, demand for normal goods decreases

21
Q

Consumers income (inferior goods)

A
  1. Consumers income increase
  2. Less willing to buy inferior goods at each and every price
22
Q

Factors impacting demand

A

Expectations of prices and income + Ease of borrowing
Gov policies
Yed - Income (inferior and normal)
Price of related goods (substitutes and complements - XED and pop size)
Tastes and preferences
Seasonal factors

23
Q

Price of related goods consist of

A

Substitutes , complements and derived demand

24
Q

Definition of substitutes

A

Subsidies in consumption (or goods in competitive demand) are goods used in place of one another for the satisfaction of a particular purpose

25
Q

Definition of complements

A

Goods in joint demand are goods used in conjunction with one another in the satisfaction of particular purpose

26
Q

Definition of derived demand

A

Demand for a factor of production that results from the demand of a final good

27
Q

Diff between complements and derived demand

A

Complements - both finished goods
Derived demand - one is factor input, one is finished good

28
Q

Consumers tastes and preferences

A

Affected by peers, ads, trends etc etc
Can increase or decrease

29
Q

Consumers expectations (exp)

A

If consumers expect the price of a good to increase in the future, they will buy more now,
current demand increase

vice versa

30
Q

Ease and cost of borrowing (exp)

A

Availability of loans
Demand increases

Fall in interest rate
Demand decreases

31
Q

Size and composition of population

A

Increase in size of pop. -> increase in consumers -> increase in demand

Aging population -> increase demand for amenities for elderly etc

ECONS (6 decks)

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