Determinants of Demand Flashcards

Questions and Answers

What are the five determinants of demand?

The price of the good or service, the income of buyers, the prices of related goods, the tastes or preferences of consumers, and consumer expectations.

What does a demand curve look like?

A graphical representation of the relationship between the price of a good and the quantity demanded.

Why does the demand line move to the right or left?

When factors other than the price of the product alter.

What does a demand curve with increased demand look like?

It shows a new line labelled D2 to the right of the original line labelled D1. Signup and view all the answers

How do economists identify the effect of price changes on demand for any good?

By assuming that all other determinants, except price, are constant. Signup and view all the answers

What do economists refer to this assumption as?

The ceteris paribus assumption. Signup and view all the answers

What are the determinants of demand other than price known as?

The conditions of demand. Signup and view all the answers

What must be done once we have drawn our demand curve?

We must examine how it would be affected by a change in the conditions of demand. Signup and view all the answers

What is an increase in demand and how does it look on a demand curve?

An increase in demand means more is demanded at each price, moving rightwards and creating a new parallel line. Signup and view all the answers

What are complementary goods?

Goods that are consumed together, such as fish and chips. Signup and view all the answers

What are substitute goods?

Alternative goods that can replace each other, like tea and coffee. Signup and view all the answers

What are inferior goods?

Goods that are purchased less as real incomes rise. Signup and view all the answers

What are giffen goods?

Staple goods that people buy more of when their real income decreases. Signup and view all the answers

What are the causes for an increase in demand?

An increase in consumers' real income, a change in taste towards the good, an increase in the price of a substitute good, and a decrease in the price of a complementary good. Signup and view all the answers

What is a decrease in demand?

A situation where less is demanded at each price, moving leftwards on the demand curve. Signup and view all the answers

Study Notes

Determinants of Demand

Five key determinants: price of the good/service, buyer's income, prices of related goods (complementary or substitute), consumer preferences, and consumer expectations.

Demand Curve

Graphical representation showing the relationship between the price of a good and the quantity demanded.

Shift of Demand Line

Demand line shifts right or left due to changes in factors other than the product's price.

Increased Demand Representation

Increased demand is illustrated by a "before and after" diagram where the original demand curve (D1) shifts to a new curve (D2) due to changing demand conditions.

Identifying Price Effects on Demand

Economists isolate the price effect by assuming all other determinants remain constant, allowing clearer analysis of demand shifts due to price changes.

Ceteris Paribus Assumption

Latin term meaning "other things remaining the same," used by economists to focus on the effects of price changes while holding other factors constant.

Conditions of Demand

Factors other than price that affect demand are referred to as conditions of demand.

Examining Demand Curve Changes

After drawing a demand curve, it is essential to assess how changes in the conditions of demand would shift the curve.

Increase in Demand

Characterized by greater quantity demanded at every price level, depicted as a rightward shift on the demand curve, resulting in a new parallel line.

Complementary Goods

Products that are used together (e.g., fish and chips); a decrease in the price of one leads to an increase in demand for the other.

Substitute Goods

Alternatives for one another (e.g., tea and coffee); if the price of one increases, demand for its substitute may rise, even if its price remains unchanged.

Inferior Goods

Goods that see decreased demand as consumer incomes rise; for example, people may buy less mince if they can afford steak.

Giffen Goods

Staple goods that may see increased demand when real income decreases, despite potential price increases (e.g., buying more potatoes than meat).

Causes for Increased Demand

Demand for a good rises with: an increase in consumer real income, a favorable change in taste, a price increase of substitute goods, or a price decrease of complementary goods.

Decrease in Demand

Refers to less quantity demanded at each price; represented in a demand curve as a leftward shift, creating a new parallel line.

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Description

Test your knowledge on the key factors that influence demand with these flashcards. Learn about the five determinants that affect consumer behavior and how they play a role in shaping the demand curve. Perfect for economics students looking to reinforce their understanding.