Law of demand

Law of Demand

Inverse relationship between price and quantity demanded. As the price for a good increase then the quantity demanded will decrease.

Why does a person’s real income fall when they purchase goods, as the price increases?

Goods takes up a larger percentage of income.as prices increase, the quantity demanded falls as goods may be pushed out of people's budgets.

How will substitute goods be affected when price increases for a specific good?

There will be a higher demand for substitute goods than the og.

Demand Curve

Graphical representation of demand at various prices. Downward slop always, because of law of demand.

What is the effect of a change in price on the demand curve?

When there is a change in the price of the good (or service), then there will be a movement along the demand curve.

Price Decrease/increase Effect

Lower prices increase quantity demanded. Higher prices decrease quantity demanded.

Consumer Sovereignty

Buyers influence production levels in the market.

Non-price Factors

Elements other than price that affect demand, which shift the demand curve. Population, Prices related to other goods, expected prices, taste/preferences and income

Income Effect

An increase in disposable income enhances consumers' purchasing power, leading to higher demand for goods.

Population Growth to demand?

Increased market size leads to higher demand.

Tastes and Preferences shift the demand curve?

When peoples tastes change to follow trends or changes within the economy, then demand for different goods will shift to follow the preferences of people. i.e the quantity demanded for a specific product.

Substitutes

Goods that can replace each other in consumption, to satisfy teh same wants or needs.

Complements

Goods commonly purchased together.

Expected Future Prices

Anticipated price changes affect current demand. For example, If consumers expect the price to increase next week, then they are more likely to purchase petrol for a cheaper price this week.

Shift to Right

Increase in demand in non-price factors, causes demand curve to shift right.

Shift to Left

Decrease in demand (of non-price factors) causes demand curve to shift left.

Disposable Income (Yd)

Income available for spending after taxes.

Equilibrium Point

Where quantity demanded equals quantity supplied.

Brand Substitution

Switching from one brand to another affects demand.

Why do consumers purchase more goods when the price is low?

Consumers have more purchasing power to spend more on G & S that satisfy more needs and wants.

Difference between an increase in quantity demanded and an increase in demand?

An "increase in quantity demanded" refers to a movement along a demand curve, which happens when the price of goods changes. An "increase in demand" means a shift of the entire demand curve, caused by factors non-price factors.

Individual market?

Demand of a single person for a certain product within a market.

Market Demand?

The combined demand of all individuals within a market.

What is an inferior good?

A product or service whose demand decreases as consumer income rises, leading people to buy less of it in favor of higher quality substitutes.

What is the substitution effect?

When a product becomes more expensive it no longer provides the same value for money. Alternatives/ substitutes available may be switched to.

What is the income effect?

When the price of a product goes up, consumers buying the product will suffer a fall in the purchasing power or real value of their income.