Economics: The Mechanics of Markets - Demand Theory

Vocabulary flashcards covering the fundamental concepts of demand theory, including the law of demand, shifts versus movements, and determinants of demand based on the lecture notes.

Demand

The willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.

Law of Demand

As the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus.

$$P$$

The symbol representing Price.

$$Q_d$$

The symbol representing Quantity Demanded.

ceteris paribus

A term meaning “all other things held constant”.

Individual Demand Curve

A curve that represents the price-quantity combinations of a particular good for a single buyer.

Market Demand Curve

A curve that represents the price-quantity combinations of a good for all buyers, derived by “adding up” individual demand curves.

Quantity Demanded

The number of units of a good that individuals are willing and able to buy at a particular price.

Change in quantity demanded

A movement from one point to another point on the same demand curve that is caused by a change in the price of the good itself (own price).

Own Price

The price of a good itself.

Change in demand

A shift in the demand curve, where an increase is a rightward shift and a decrease is a leftward shift.

Normal Good

A good for which demand rises (falls) as income rises (falls).

Inferior Good

A good for which demand falls (rises) as income rises (falls).

Neutral Good

A good for which demand does not change as income rises or falls.

Substitutes

Two goods that satisfy similar needs or desires, where the demand for one rises as the price of the other rises.

Complements

Two goods that are used jointly in consumption, where the demand for one rises as the price of the other falls.

Determinants of Demand

Factors that cause the demand curve to shift: income, preferences, prices of related goods, number of buyers, and expectations of future prices.

Expectations of Future Price

A factor where buyers expecting higher future prices increase current demand, while those expecting lower future prices reduce current demand.