Interpret Demand Schedules and Demand Curves Flashcards
(25 cards)
What is a Demand Curve?
A graphical representation of the relationship between the price of a good or service and the quantity of that good or service that is demanded by consumers.
What does Quantity Demanded (Qᴅ) refer to?
The specific amount of a good or service that consumers are willing and able to purchase at a given price.
What is an Independent Variable?
A variable that influences or causes changes in other variables. In the demand curve, price (P) is the independent variable, plotted on the vertical axis.
What is a Dependent Variable?
A variable whose value depends on the value of other variables. In the demand curve, quantity demanded (Qᴅ) is the dependent variable, plotted on the horizontal axis.
What is a Demand Equation?
A mathematical equation that describes the relationship between quantity demanded, price, and other factors affecting demand (e.g., Qᴅ = -aP + Constant).
What is a Slope Parameter?
In a linear demand equation, the coefficient attached to the price variable. It determines the strength and direction of the price’s impact on demand.
What does a negative slope parameter indicate?
It indicates the inverse relationship between price and quantity demanded.
What is a Constant in the demand equation?
The term that represents the impact of all non-price determinants of demand. A change in the constant shifts the entire demand curve.
What is a Linear Equation?
An equation where the relationship between variables results in a straight line when plotted on a graph.
What is Movement Along the Demand Curve?
A change in quantity demanded caused only by a change in the price of the good itself.
What is a Shift of the Demand Curve?
A change in demand caused by factors other than the price of the good, such as income, tastes, or expectations.
What does the Horizontal Intercept represent?
The point where the demand curve intersects the horizontal axis (quantity demanded axis), representing the quantity demanded when the price is zero.
What is the Law of Demand?
The principle that an increase in price leads to a decrease in quantity demanded, and vice versa, ceteris paribus.
What does the Slope measure?
The measure of the steepness of a line. On a demand curve, the slope is typically negative, reflecting the inverse relationship between price and quantity demanded.
What is a Generalized Demand Curve?
A demand curve with price (P) and quantity demanded (Qᴅ) labeled as generalized variables P₀, P₁, Q₀, Q₁ etc.
What is the purpose of a demand curve?
A demand curve visually represents the relationship between the price of a good and the quantity demanded. It uses a graph where the price (P) is the independent variable on the vertical axis and the quantity demanded (Qᴅ) is the dependent variable on the horizontal axis.
In the demand equation Qᴅ = -10P + 220, what does the constant (220) represent?
The constant (220) represents the impact of all non-price determinants of demand. This means that if price is zero, a quantity of 220 is demanded. A change in the constant will shift the entire demand curve.
What is the slope parameter (-10) in the demand equation Qᴅ = -10P + 220?
The slope parameter (-10) indicates the strength and direction of the price impact on demand. The absolute value indicates the magnitude of responsiveness of quantity demanded to changes in price, and the negative sign indicates an inverse relationship.
What does the direction of causality shown in a demand curve indicate?
The direction of causality flows from the vertical axis (price) to the horizontal axis (quantity demanded), indicating that price changes cause quantity demanded to change.
How does the slope of a demand curve illustrate the Law of Demand?
The downward-sloping demand curve demonstrates the Law of Demand, where an increase in price results in a decrease in quantity demanded and vice versa.
What is the difference between a shift of the demand curve and a movement along the curve?
A movement along the demand curve is caused solely by changes in the price of the good itself, while a shift of the entire demand curve is caused by changes in factors other than the good’s price.
How does a larger slope parameter affect the demand curve?
A larger slope parameter (in absolute value) results in a steeper demand curve, implying that quantity demanded is more sensitive to price changes.
What is the standard calculation of slope in economics?
In a standard graph, slope is calculated as ‘rise over run’ (Δy/Δx). In economics, the axes are reversed, with price (P) on the vertical axis and quantity demanded (Qᴅ) on the horizontal axis.
How do you assign quantities to unlisted prices using a demand curve?
To assign quantities to unlisted prices using a demand curve, locate the price on the vertical axis, move horizontally to the curve, and then drop vertically to the horizontal axis to read the corresponding quantity demanded.
