Demand & Supply Flashcards
What happens when there is an increase in demand?
Rightwards shift in demand curve → Causes shortage at same P → Upward pressure on P, Qdd decrease, Qss increase → P increases, Q increases
What happens when there is an increase in supply?
Rightwards shift in supply curve → Causes surplus at same P → Downward pressure on P, Qdd increase, Qss decrease → P decreases, Q increases
What are the 7 non-price factors affecting demand?
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Expectations of future prices Government policies Y → income Price of related goods Tastes and preferences Credit availability and hire purchases Seasonal Changes
How does an expectation of future prices affect demand?
- Consumers expect prices to increase in future → Buy more to maximise satisfaction per additional dollar spent → increases demand
- Consumers expect prices to decrease in future → Buy less/postpone purchases to later to maximise satisfaction per additional dollar spent → decreases demand
How do government policies affect demand?
Policies imposed by government may change demand for certain goods & services
- Decrease in personal tax → Increase in disposable income → increase in purchasing power → increase in demand for normal goods & services
- Increase in COE for cars → increase in cost of car ownership → decrease in demand for cars
Define normal and inferior goods.
Normal goods: Goods whose demand increases when Y is consumers increase. (Essential and luxury goods are normal goods. Affordability of normal goods depend directly on Y)
Inferior goods: Goods whose demand decreases when Y is consumers increase. (Inferior goods do not necessarily have an inferior quality)
How does personal income affect demand?
When Y changes, consumers demand for different goods & services
-Y increases → demand of normal goods increase, demand for inferior goods decrease
What are related goods?
If good A is related to good B, when good A’s demand changes, good B’s demand changes as well
