demand and supply Flashcards
(25 cards)
define law of demand
the higher the price of a good, the smaller the quantity demanded
the lower the price of a good, the bigger the quantity demanded
if you demand something, you…?
- want it
- plan to buy it
- can afford it
define quantity demanded
quantity demanded for goods and services it the amount that consumers plan to buy in the given time at a particular price
2 reasons why a higher price reduces the quantity demanded
- substitution effect
- income effect
explain substitution effect
when the price of a good rises, people will buy less of the good and more of its substitute
give me an example of substitution effect
an apple used to be $1 and it rose to $2, people will buy less apple and more of other fruits
explain income effect
when the price of a good rises, the people’s ability to buy will be affected. As a result they would buy lesser
example of income effect
John earn $10
last time he can buy 10 apples
now he can only buy 5 apples
what is a demand curve?
a demand curve shows the various quantities of a product consumers are willing and able to purchase at possible price during a specific time period
what does demand curve look like?
downward sloping
difference between changes in quantity demand and changes in demand
changes in quantity demand is affected by price of the good
changes in demand is affected by non-price determinants
examples of non-price determinants
no. of buyers, taste and preferences, income, expectation of buyers, prices of related goods
how number of buyers affect demand
if there is an increase in population growth , there will be an increase in no. of buyers. therefore, an increase in demand (demand curve shifts to the right)
explain the non-price determinant (taste and preference)
if a celebrity is seen carrying a specific keychain, the keychain’s demand curve will shift rightwards.
if time passes and people loss interest, the demand curve will shift leftwards
explain non=price determinant (expectation of buyers)
the demand curve will be affected when consumers expect a change in the future. eg. a increase/decrease in price of product in the future. therefore buying less/more of the product now
what are the 2 categories for the relationship between changes in income and changes in demand
- normal good
- inferior goods
relationship between income and change in demand? (normal goods)
demand relationship
when income increases, demand for goods increase (shifts rightwards)
because people can afford it
relationship between income and changes in demand? (inferior goods)
inverse relationship
when income increases, the demand for goods decreases (shifts leftwards)
eg. bus rides
people can afford more expensive things and put down the cheaper things
2 types of related goods?
- substitute goods
- complementary goods
relationship between related goods and demand (substitute goods)
when a price of good increase, the demand of substitute good increase
eg. pepsi and coke
relationship between related goods and demand (complementary goods)
when price of good increase, the demand of the other good decreases (shifts leftwards)
eg. phone and charger
why is the demand curve downward sloping?
because of the inverse relationship between price and quantity demanded, the demand curve is downward/negatively sloping
what causes a movement along the market demand curve
A change in quantity demanded causes a movement along the same demand curve
what causes the demand curve to shift?
A change in demand causes a shift of the whole demand curve
