1.2.2 Flashcards
(28 cards)
What is demand?
The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
What is effective demand?
When a desire to buy a product is backed up by an ability to pay.
What is derived demand?
The demand for a factor of production used to produce another good or service.
What does the demand curve show?
The inverse relationship between the price of an item and the quantity demanded over a period of time
What are the two reasons as for why more is demanded as price falls?
-The income effect
-The substitution effect
What is the income effect?
When the price of a good falls, the consumer can maintain the same consumption for less expenditure, this increases “real income”
What is the substitution effect?
When the price of a good falls, ceteris paribus, the product is now relatively cheaper than an alternative and some consumers will switch their spending from the alternative good or service.
What is the law of Diminishing Marginal Utility?
The satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed, assuming the consumption of all other goods remain constant.
The conditions of demand are the factors that cause?
The demand curve to shift
A shift to the right on the demand curve shows what?
Increase in demand
A shift to the left on the demand curve shows what?
Decrease in demand
What are the factors that influence the conditions of demand?
-Population
-Income
-Related goods
-Advertising
-Taste/fashion
-Expectations
-Seasons
-Government legislation
How does population influence the conditions of demand?
If populations rises, demand for all products increases so the demand curve shifts to the right.
How does income influence the conditions of demand?
income increases, demand increases as they can afford to buy more of the product.
Fall in income, demand decreases and shifts to the left.
How do related goods influence the conditions of demand?
If goods are complements or substitutes of each other then a change in price of another good can cause a shift in the demand curve.
How does advertising influence the conditions of demand?
If a firm carries out successful advertising, demand is likely to increase.
If a competitor firms has a successful advert demand for the first firm will fall.
How does taster/fashion influence the conditions of demand?
If something becomes more fashionable, we expect demand to increase and if it becomes less fashionable, then demand falls.
How do expectations influence the conditions of demand?
Expectations of what might happen in the future.
If we expect a shortage or price rise then demand increases.
If we expect a price fall demand decreases.
How do seasons influence the conditions of demand?
Some products will find their demand is affected by the weather.
Summer, demand for sun cream increases.
How does government legislation influence the conditions of demand?
Affects demands for goods.
Demand for car seats after it became legal requirement
What is joint demand?
When demand for one product is positively related to demand for a related good or service.
What are examples of joint demand?
Fish and chips
apps for smartphones
What is composite demand?
Exists where goods have more than one use, and so an increase in the demand for one product leads to a fall in supply of the other?
What are examples of composite demand?
Milk which can be made for cheese, butter.
