Markets and Competition - The Theory of Demand

These flashcards cover key concepts related to the competitive market, the theory of demand, demand determinants, and exceptions to the law of demand.

What is a competitive market?

A market with many buyers and sellers where no one can influence the market price.

What does the law of demand state?

The quantity demanded of a good falls when its price rises, and vice versa, assuming all else is equal.

What are the determinants of demand?

Price, price of related commodities, consumer’s income, consumer’s taste and preferences, consumer’s expectations, and number of buyers.

What is the difference between individual and market demand?

Individual demand is the demand from one consumer, while market demand is the sum of all individual demands for a good.

What effects do changes in consumer expectations have on demand?

Expectations about future prices can lead consumers to increase or decrease their current demand.

What characterizes Giffen goods?

Giffen goods have an upward-sloping demand curve, meaning demand increases as their price increases, contrary to the law of demand.

What are Veblen goods?

Luxury items that have increased demand as their price rises, as they are used to display wealth.

How do changes in the number of buyers affect the demand curve?

An increase in the number of buyers shifts the demand curve to the right, while a decrease shifts it to the left.

What is the difference between change in quantity demanded and change in demand?

Change in quantity demanded is a movement along the same demand curve due to a price change, while change in demand is a shift in the entire demand curve due to other factors.

What are examples of complementary goods?

Gasoline and automobiles; gas cookers and gas cylinders.

Types of demand and explain

• Joint/ complentary demand- goods that are used together (eg tea and sugar)

• Competitive demand- goods that can replace each other (eg Pepsi or coke)

• Derived demand- a demand for a good bc it is used to make something else (wood for furniture)

• Composite demand- when one good had many uses (flour can be used for bread, butter and cheese)

Difference between 'change in quantity demanded’ and ‘change in demand’

Change in quantity demanded is due to a change in price and causes movement along the same demand curve, whereas change in demand is due to factors other than price and causes a shift of the entire demand curve.

Demand curve shifters

• number of buyers

• Income( depends if the food is a normal good or and inferior good)

• Prices of related goods

• Consumer's expectations

• Taste and preferences