the concept of demand Flashcards
define demand
the buying intentions of consumers
define the law of demand
“as the price of a good rises, people buy less of it, ceteris parabus”
define income effect
the change in the demand for a good or service caused by an increase or decrease in a consumers purchaing power or real income
define substitution effect
the decrease in sales for a product that can be attributed to consumers switching to alternatives when its price rises
define non price factors
factors that are not related to the price of a product that can cause a change in the demand for a god or service
define price factors
how the price of a prouct can shift teh demand for a good or service
what are the 5 non price factors
- levels of diposable income
- price of related goods
- taste and preferneces
- expectations of consumers
- demographic factors
explain levels of disposbale income
your level of income detemrines your budget, so consumers will normally purchase more of a good when their income inreases
explain price of related goods
substitues are known as goods and services whcih satisfy the same wants. people will use substitutes if the price of a good increases but their real income does not increase with it
explain tastes and preferneces
the advertising industry plays an important role in affecting consumers preferenaces and spending habits
explain expectations of consumers
if people expect consitions to change in the future, they make decsions now rather thanpostpone them. This measn that if there is expectations of a price increase in the furture teh demand now will shift the demand curve to the right
explain demographic factors
a growing population incerases the market size for all goods and services, whereas a change ina age profile will affect specific goods and services
