LECTURE 2 - Thinking Like the Buyer: Demand Flashcards
(19 cards)
define market
a group of buyers and sellers of a particular good or service
the buyers as a group determine the demand for a product. the sellers as a group determine supply for a product
define competitve market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market impact
price and quantitiy of a good is not determined by a single buyer/seller
what is a price taker
buyer and sellers in a competitve market that accept the price the market determines
what is a monopoly
when some goods are only sold by one seller and the seller sets the price
example: local tv companies
define quantity demanded
the amount of a good that buyers are willing and able to purchase
one determinant plays a central role in demand, price
what is the law of demand
the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises.
and for the inverse
what is a demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
[insert photo]
what is a demand curve
a graph that shows the relationship between the price of a good and the quantity demanded
[insert demand curve]
all other factors are held constant
what variables can shift the demand curve
- income
- price of realted goods
- tastes
- expectations
- number of buyers
how does income shift the demand curve
a lower income means you have less to spend in total, so you’d have to spend less on some goods
normal and inferior goods
how does price of related goods shift the demand curve
when a change in price of one good changes the demand of anohter good the demand curve shifts
substitutes and complements
how do tastes shift the demand curve
if you like a certain good you are likely to buy more of that good so the demand shifts
based on hsitorical and psychological forces beyond economics
economists do not study people but rather what happens when tastes change
how do expectations shift the demand curve
your expectations about the future may affect your demand for a good or a service. if you expect to have a higher income, you may choose to save less
how may the number of buyers shift the demand curve
market demand depends on the number of buyers.
more buyers -> increase quantity demanded -> market demand increases
what are the different types of goods
- normal goods
- inferior goods
- substitutes
- complements
normal and inferior link to how income shifts the demand curve. substitutes and complements link to how price of related goods shift the demand curve
what is a normal good
a good for which, other things being equal, an increase in income leads to an increase in demand
e.g. buying a car
what is an inferior good
a good for which, all things being equal, an increase in income leads to a decrease in demand
e.g. bus rides
what is a substitute good
two goods for which and increase in price of one leads to an increase in demand for the other
e.g. ice cream and frozen yoghurt. due to the increase in price of one of the goods, people stop buying that good and buy another good, therefore increase the demand
what is a complementary good
two goods for which an increase in price of one leads to a decrease in the demand for the other
e.g. cars and petrol. due to the increase in price of one good (cars), the demand of another good falls (petrol)
