Demand Flashcards
define marginal utility
satisfaction gained by consuming an additional unit of goods or services
define marginal benefit
change in total benefit from an extra unit
define marginal cost
change in total production cost that comes from making or producing an additional unit
define diminishing marginal utility
marginal utility from each additional unit declines as consumption increases
what does demand curve show
inverse relationship between price and quantity demanded
= as price falls there’s an extension of demand, as price rises there’s a contraction of demand
define demand
quantity of a good or service that consumers are able to buy at a range of prices over a given period of time
what happens to graph if demand increases due to price
contraction= shift on the graph
define effective demand
desire to buy a product is backed up by an ability to pay
define substitute
product or service that can be bought instead of another
reasons for demand to decrease- linked to price change
- price increases
- income effect
= real income decreases
= can’t afford additional products - cheaper substitute
= substitute can meet their wants and needs at cheaper price - diminishing marginal utility
= marginal utility decreases per unit
= less pleasure per product
= not willing to pay high price for next unit
= not worth the money
reasons for shift in demand curve
population
advertising
substitutes
income
trends
price of complementary goods
define derived demand
Occurs when a good of FOP is necessary for provision of another good or service
E.g. lithium batteries and mobile phones
composite demand
goods have different uses= increase demand of one product= fall in supply of the other
Describe the law of diminishing returns
As more of a variable factor (e.g. labour) is added to a fixed factor (e.g. capital)
= firm will reach a point where it has a disproportionate quantity of labour to capital and so the marginal product of labour will fall, thus raising marginal cost and average variable cost.
employing an additional factor of production will eventually cause a relatively smaller increase in output
= only in the short run
When does LODR occur
When the variable input becomes less productive
