econ - 2.1: demand

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define demand

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credit https://www.econinja.net/microeconomics/2-1-demand/movements-and-shifts-on-the-demand-curve

17 Terms

1

define demand

the quantity of a good that consumers are willing and able to purchase in a given period of time

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2

what does the law of demand state?

the quantity demanded of a product will fall if price rises, and vice versa, ceteris paribus

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3

what are the assumptions underlying the law of demand?

  • the income effect

  • the substitution effect

  • the law of diminishing marginal utility

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4

what is the income effect?

as the price of a product falls, the real income of consumers increases, meaning they are able to buy more products at lower prices creating more demand.

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5

what is the substitution effect?

as the price of a good or service falls, the product will become more attractive than more expensive substitute products, and customers will switch over (increasing demand)

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6

what is the law of diminishing marginal utility?

as consumption of a good or service increases, the additional gain of consuming one more decreases, so consumers are only willing to pay lower prices

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7

draw the basic demand curve

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8

what is the market demand curve?

since a market is a place where transactions between buyers and sellers take place, the market demand curve is the sum of all individual demand for a product.

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9

what are the five non-price determinants of demand?

  • income

  • tastes and preferences

  • future price expectations

  • number of consumers

  • prices of related goods

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10

how does income affect demand?

higher levels of income = ability to buy more products

increases demand even when price stays the same

only the case for normal goods, not the case for inferior goods

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11

how do future price expectations impact demand?

if a product is going to be worth lots in the future, many people will buy it now (and vice versa)

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12

how does the number of consumers impact demand?

the more consumers there are in the market, the more demand there is

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13

how do the prices of related goods impact demand?

  • complementary goods: goods that are jointly demanded (i.e. phones and phone cases) - when the price of one increases then the demand for the other decreases

  • substitute goods: goods that compete against on another (i.e. samsung and iphones) when the price for one increases, demand for the other decreases

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14

what are movements along the demand curve called and caused by?

called expansions or contractions, determined by price

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15

what are shifts of the demand curve called

called a leftward shift if demand decreases, and a rightward shift if demand increases. caused by one or multiple non-price determinants of demand.

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16

draw the diagram for a contraction or expansion of demand

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17

draw the diagram for a leftwards or rightwards shift of the demand curve

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