Topic 2: Demand and Shifts in the Demand Curve Flashcards
Define Law of demand
(all other things being equal)
- quantity demanded falls when price rises
- Demand is inversely (negatively) related to price
define demand
quantities of a good that buyers are willing and able to pay at various prices
whats a demand schedule
table
at what price is usually the max demanded
0
what 3 things explain the law of demand? why it slopes downwards?
- substitution effect
- income effect
- diminishing marginal utility
explain substitution effect
- price increases, consumers substitute away from this good > relatively cheaper alternative
- Example: oranges to apples
explain income effect
- Decreased price = purchasing power of our existing income has increased
- note: income fixed
explain diminishing marginal utility
- As individuals consume more, enjoy additional units of that good less and less
difference between market and individual demand
Individual demand: demand of certain individual
Market Demand: sum of all individual demands
what is a non price factor
variables that shifts demand curve
what does a shift to right mean in demand
increase demand
what does a shift to left mean in demand
decrease demand
what is expressed differently for ‘movement along curve’ and shift of curve;
- Movement along curve: ‘Change in quantity demanded’
- Shift of curve: ‘change in demand’
how is income a non price factor
- Increase/ decrease in income > consumers are willing and able to buy more/ or less of a good (at each and every price)
difference between normal and inferior good
o Normal good: increase in income > increase in demand (e.g. iPhones)
o Inferior good: increase in income > decrease in demand (e.g. instant coffee)
how is price of relative goods a non price factor
o Substitutes (alternatives): two goods for which a decrease in price of one good > decrease demand for the other good
o Complements: two goods for which a decrease in price of one good > increase demand of another good
what does price of relative good refer to in terms of which goods price is changed
relates to change of price other good, not graphed good
how is a change in preference a non price factor
o Change in preference towards good > increase demand (right shift)
o Change in preference away from good > decrease demand (left shift)
when does the curve shift (rather than move along)
when change in relevant factor not measured on axis
what is the determinant of whether there is a shift or movement of curve
price / non price
