AP Macroeconomics - Unit 1: Demand

Demand

A consumer's willingness and ability to buy something at a given price

“Demand” is affected by ________.

Behavior

“Quantity Demanded” is affected by the ________.

Price

Law of Demand: Price

The price and the quantity demanded are inversly related

Law of Demand: Elasticity

The more elstic something is the more the effect price has on a good or service (and vice versa)

Income Effect

As prices rise then money will buy less (and vice versa)

Substitution Effect

When something is too expensive then it will be substituted

Diminishing Marginal Utility

With each aditional purchace of a product it has less marginal utility than previously

Causes of Demand Changes: “T” in TRIPE

Taste and Preferances: trends, health considerations, advertisements

Causes of Demand Changes: "R” in TRIPE

Related Goods: goods that compliment or go with other goods, or goods that substitute others

Causes of Demand Changes: “I” in TRIPE

Income of Consumers: rising incomes cause greater demand for normal goods and decreasing demand of inferior goods (and vice versa)

Causes of Demand Changes: “P” in TRIPE

Population: more population means more consumer demand (and vice versa)

Causes of Demand Changes: “E” in TRIPE

Expectations: if consumers expect rising prices in the future then demand INCREASES now, and if consumers expect lower prices in the future then demand DECREASES now