Demand Flashcards
Market
A place where buyers and sellers come together to carry out an economic transaction. Can be physical or online
Marginal utility
Extra satisfaction
As we increase the purchase of a good, what happens to the marginal utility?
It decreases so we are willing to pay a lower price
Principle of Diminishing Marginal Utility
Consumer is willing to pay a high price for the first good, with successively lower prices for the second and third good.
Demand
The quantity of goods or services that a consumer is willing and able to purchase at different prices
Law of demand
As prices decreases, the quantity demanded will rise.
Why does a demand curve slope downwards?
Income effect, substitution effect and law of diminishing marginal utility
What are the 5 determinants of demand?
Income (normal and inferior goods)
Number of consumers
Future price expectations
Preferences and tastes
Substitutes
What is normal goods and inferior goods?
Normal goods are goods that as income increases, demand increases slightly. Inferior goods are goods that as income increases, demand decreases
What are substitutes and complements?
Substitutes are goods that can be swapped to replace each other - ie if price of coke increases, demand for pepsi also increases. Complements are goods that go well with each other - if the price of petrol increases, the demand for cars will decreases.
Tastes and preferences
Desires towards purchasing a good or not due to fashion etc
Future price expectations
If consumers believe the price will drop tomorrow, the demand today will decrease.
When will the demand curve shift
When a determinant of demand changes - to the right is a increase in demand, to the left is a decrease in demand
A change in the quantity demanded in a demand curve is shown by what?
A movement along the curve
What is the demand curve affected by?
Determinants of demand
How does number of consumers impact demand?
The number of consumers in a market will either increase or decrease the demand for goods and services.
How can the market demand for a good or service be obtained?
By summing up the individual demands of each consumer
What are the key assumptions behind demand theory?
Consumers behave rationally, act in their own self interest and have access to all information
Why are the key assumptions behind demand theory not realistic?
Consumers don’t act rationally, don’t have full or reliable information and act thinking about other people
What are the two systems that humans have?
System 1 - fast, subconscious automatic decisions and System 2 - slow thinking, thought on and reflected
What system does modern and neoclassical economics think consumers act on?
Neoclassical think slow system 2, modern think fast system 1
What are the 7 cognitive biases?
Framing bias, social conformity, status quo, loss aversion bias, hyperbolic discounting, availability bias anchoring bias
What is availability bias?
The availability of recent information influences decision making - rely on recent examples to make decisions
What is anchoring bias?
Briscoes uses this - uses price as a reference point so sales look a lot better
