Law of Demand (Video Notes)

Vocabulary flashcards covering key terms from the Law of Demand notes.

Law of Demand

Inverse relationship between price and quantity demanded, holding all else constant (ceteris paribus).

Demand

The willingness and ability of consumers to purchase a good or service at various prices.

Willingness and Ability

Consumers’ desire to buy a good plus the means to pay for it.

Willingness to Pay

The maximum price a consumer is willing to pay for a good.

Ceteris Paribus

Latin for 'all else equal'; assumption that other factors remain unchanged.

Demand Curve

Graph showing price vs. quantity demanded for a given time period; price on the vertical axis, quantity demanded on the horizontal axis.

Demand Function (Qx = f(Px; Y))

Qx is the quantity demanded of good x as a function of its price Px and other held-constant factors Y.

Qx

Quantity demanded of good x.

Px

Price of the good.

Y

Other parameters held constant (income, prices of other goods, preferences, etc.).

Giffen Goods

Inferior goods for which higher prices lead to higher quantity demanded, due to the income effect dominating the substitution effect.

Veblen Goods

Luxury or prestige goods whose demand rises with price because higher price signals higher value or status.

Necessities/Basic Goods

Goods that consumers continue to buy even when their prices rise.

Substitution Effect

When a price change causes consumers to switch to a cheaper substitute.