Demand and Demand Curve Lecture Notes

Question-and-answer flashcards covering definitions, laws, determinants (HIS AGE), movement vs. shift of demand curves, and specific effects of income, substitutes, complements, advertising, government policy, and economic conditions.

What is the economic definition of demand?

The willingness and ability of a buyer to pay a given price for a good or service, or the quantity a consumer is willing and able to purchase at that price.

State the Law of Demand.

As the price of a commodity decreases, the quantity demanded increases; as the price increases, the quantity demanded decreases.

What causes movement along a demand curve?

Changes in the price of the product itself.

What is the term for a decrease in quantity demanded due to a rise in price?

Contraction of demand (movement upward along the demand curve).

What is the term for an increase in quantity demanded due to a fall in price?

Extension of demand (movement downward along the demand curve).

What is meant by a ‘shift’ of the demand curve?

A change in demand caused by factors other than the product’s own price, resulting in the entire curve moving rightward or leftward.

List any three factors that can cause a rightward shift of the demand curve.

Examples: favourable tastes/fashion, increase in consumer income, favourable government policies (e.g., subsidies), more advertising, fall in price of a complementary good, rise in price of a substitute.

List any three factors that can cause a leftward shift of the demand curve.

Examples: unfavourable tastes/out-of-fashion goods, decrease in consumer income, unfavourable government policies (e.g., high taxes), rise in price of a complementary good, fall in price of a substitute.

In the mnemonic HIS AGE, what does each letter stand for?

H – Habits/Fashions/Tastes; I – Income; S – Substitutes and Complementary goods; A – Advertising; G – Government policies; E – State of the Economy.

How does an increase in disposable income affect demand?

It generally leads to higher demand for goods and services.

How does the price of a substitute good affect demand for the original good?

If the price of a substitute falls, demand for the original good decreases; if it rises, demand for the original good increases.

How does the price of a complementary good affect demand?

If the price of a complementary good falls, demand for the original good increases; if it rises, demand decreases.

What impact does persuasive advertising typically have on demand?

It informs, reminds, and persuades consumers, usually increasing demand.

How can government subsidies affect demand?

Subsidies lower production costs, reduce prices, and thus increase demand for the subsidized product.

During a recession, what generally happens to overall demand in the economy?

There is a general fall in demand for goods and services.