1.3.1 demand Flashcards
(13 cards)
What is effective demand?
The quantity that consumers are willing to buy at the current market price.
What is individual demand?
Demand of an individual or firm, measured by the quantity bought at a certain price at one point in time.
What is market demand?
Sum of all individual demands in a market.
What are factors that can shift the demand curve? [7]
- Population
- Income
- Related goods
- Advertising
- Tastes and fashions
- Expectations
- Seasons
What is the mnemonic for the factors that shift the demand curve?
PIRATES.
How does population shift the demand curve?
The larger the population, the higher the demand. Changing the structure of the population also affects demand, such as the distribution of different age groups.
How does income shift the demand curve?
If consumers have more disposable income, they are able to afford more goods, so demand increases.
How do related goods shift the demand curve?
A substitute can replace another good. If price of substitute falls, quantity demanded of the original good will fall because consumers will switch to the cheaper option.
A complement goes with another good, such as strawberries + cream. If price of strawberries increases, demand for cream will fall as fewer people will be buying strawberries, hence fewer buying cream.
What are related goods?
These are substitutes or complements.
How does advertising shift the demand curve?
It will increase consumer loyalty to the good and increase demand.
How do tastes and fashions shift the demand curve?
The demand curve will also shift if consumer tastes change. For example, demand for physical books might fall, if consumers start preferring to read e-books.
How do expectations shift the demand curve?
This is of future price changes. If speculators expect the price of shares in a company to increase in the future, demand is likely to increase in the present.
How do seasons shift the demand curve?
Demand changes according to the season, for example in the summer demand for ice cream increases.
