1.2.1-2 Demand

What are the assumptions made about rational economic decision making

• Consumers aim to maximise utility

• Firms aim to maximise profit

• Governments aim to maximise social welfare

What is demand?

The ability and willingness to buy a particular good at a given price and at a given moment in time

What is a movement along the demand curve caused by?

A change in price

-Quantity demanded falls- contraction

-Quantity demanded increases - extension

What is a shift of the demand curve caused by?

A change in other factors that can affect price

What factors can affect demand

P- Population

A- Advertising

S- Substitutes

I- Income (for normal goods)

F- Fashion/ Tastes

I- Interest Rates

C- Complements

Why does the demand curve slope downward

Shows the inverse relationship between price and quantity due to the law of diminishing marginal utility

What is total utility

The satisfaction gained by a customer as a result of their overall consumption of a good

What is marginal utlity

The change in satisfaction resulting from the consumption of the next unit of a good

What is the law of diminishing marginal utility

The satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed