1.2.2-1.2.3 demand Flashcards
(27 cards)
what is demand?
the quantity that purchasers are willing and able to buy at a given price in each time period
what is the law of demand
Demand varies inversely with price
what does a fall in market price cause
extension in demand
what does a rise in market price cause?
a contraction in demand
what factors move along the demand curve?
income effect
substitution effects
law of diminishing utility
what causes the demand curve to shift
Population
Advertising
Price of substitute/complementry goods
Income
Trend
Interest rates
what is the substitution effect?
if the price of one product increases consumers will find a close substitution
what is the income effect?
If the prices are lower consumers have more purchasing power to buy
what is the law of diminishing utility
as consumers use products satisfaction rates will decrease, they are willing to pay less for each unit
What is effective demand?
The demand for a good at set is form consumers that is backed up with an ability to pay
what is potential (latent) demand?
It is not yet expressed in the market place because consumers don’t have the ability to pay
what is derived demand
the demand for a factor of production that is used to produce another good or service
what is joint demand?
when the demand for one product is directly positively related to market demand for a related good or service
what is composite demand?
the goods have more than one us they can lead to a fall in market supply
what is marginal utility?
willing to pay less for each successive unit
what is the price elasticity of demand?
the responsiveness (sensitivity) of x to a change in another variable
it measures the responsiveness of demand after a change in a goods own price
how do you calculate PED?
percentage change in qd / percentage change in price
if PED = 0
demand is perfectly inelastic
Demand doesn’t change when the price changes
if PED is between 0 & 1
% change in demand is smaller than the % change in price the demand is elastic
if PED = 1
% change in demand is the same as the % change in price the demand is unit elastic
if PED > 1
the demand responds more than proportionally to a change in price
how do you calculate revenue
Price × quantity sold
what effects PED
Price of substitute good
Percentage of income
Luxury/necessary
Addictive Nature
Time
what effects PED
Price of substitute good
Percentage of income
Luxury/necessary
Addictive Nature
Time
