The demand curve Flashcards
What does the “law of demand” states?
Key points
The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
Demand curves and demand schedulesare tools used to summarize the relationship between quantity demanded and price
Describe demand for goods and services
Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay, you have no effective demand.
What is the effect of price on quantity demand?
What a buyer pays for a unit of the specific good or service is called price. The total number of units purchased at that price is called the quantity demanded. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand are held constant.
What is a demand schedule?
A demand schedule is a table that shows the quantity demanded at each price.
Price, in this case, is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period—for example, per day or per year—and over some geographic area—like a state or a country.
What is a demand curve?
Here’s the same information shown as a demand curve with quantity on the horizontal axis and the price per gallon on the vertical axis. Note that this is an exception to the normal rule in mathematics that the independent variable (xxx) goes on the horizontal axis and the dependent variable (yyy) goes on the vertical.
What is the difference between demand and quantity demanded?
In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve or one quantity on the demand schedule. In short, demand refers to the curve, and quantity demanded refers to a specific point on the curve.
How does the price of related products effect demand?
How does the change in expected future prices effect demand?
How do changes in income, population, or preferences effect demand?
How do normal and inferior goods effect demand?
What factors change demand?
Key points
Demand curves can shift. Changes in factors like average income and preferences can cause an entire demand curve to shift right or left. This causes a higher or lower quantity to be demanded at a given price.
Ceteris paribus assumption. Demand curves relate the prices and quantities demanded assuming no other factors change. This is called the ceteris paribusassumption. This article talks about what happens when other factors aren’t held constant.
What factors affect demand?
We defined demand as the amount of some product a consumer is willing and able to purchase at each price. That suggests at least two factors in addition to price that affect demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor want something, you will not buy it. Ability to purchase suggests that income is important. Finally, the size or composition of the population can affect demand.
What is “The ceteris paribus assumption”?
A demand curve or a supply curve is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product’s price, are changing. Translation, a Latin phrase meaning “other things being equal”.
How does income affect demand?
What is the difference between “normal” and “inferior” goods?
A product whose demand rises when income rises, and vice versa, is called a normal good.
A product whose demand falls when income rises, and vice versa, is called an inferior good.
