Demand Functions and Economic Analysis

A set of flashcards designed to help review key concepts related to demand functions and economic analysis, such as definitions, relationships, and implications in the market.

Individual Demand Function

The relationship between the quantity demanded of a good by an individual and the factors affecting it, often represented algebraically as Dx = f(Px, I, Pr, E, T).

Market Demand Function

The total quantity demanded of a good by all consumers in a market, represented algebraically as Dx = f(Px, Y, Py, Ep, T, PP, A, U).

Demand Function

A mathematical function that describes the relationship between quantity demanded and various factors determining that demand.

Law of Demand

A principle stating that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Price Elasticity of Demand (PED)

A measure of the responsiveness of quantity demanded to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Consumer Surplus (CS)

The difference between what consumers are willing to pay for a good and what they actually pay, often represented as the area under the demand curve above the market price.

Linear Demand Function

A demand function where quantity demanded decreases linearly with increases in price, typically expressed as Q = a - bP.

Non-Linear Demand Function

A demand function where the relationship between price and quantity demanded is more complex than a straight line, such as Q = 100 - 0.5P².

Marginal Analysis

A technique used in decision-making, examining the benefits of an additional unit of output compared to the costs associated with that output.

Indifference Curve

A graph showing combinations of goods that provide equal satisfaction and utility to a consumer, used to analyze consumer choice.

Market Demand

The sum of the individual demand curves of all consumers in a market at each price level.

Shift of the Demand Curve

A change in the demand for a good due to changes in external factors like income, tastes, or the price of related goods, represented visually as the entire curve moving left or right.

Determinants of Demand

Factors affecting the demand for a product, including price, income levels, consumer preferences, and prices of related goods.