Economics: Law of Demand Flashcards

Study Notes

Law of Demand

Higher prices generally result in lower quantities demanded, while lower prices increase the quantity demanded.
This inverse relationship between price and quantity demanded is known as the law of demand.

Demand Curves and Demand Schedules

Demand curves graphically represent the relationship between price and quantity demanded.
Demand schedules provide a tabular format showing quantity demanded at varying prices.

Definition of Demand

Demand refers to the amount of a good or service that consumers are willing and able to purchase at various prices.
It encompasses both needs and wants from an economic perspective.
Effective demand requires both willingness and ability to pay.

Impact of Price on Quantity Demanded

As the price of a good or service increases, consumers typically purchase less of it.
Conversely, a decrease in price leads to an increase in quantity demanded.
Example: Rising gas prices may lead consumers to alter their travel habits to save fuel.

Demand Schedule

A demand schedule illustrates quantity demanded across different prices, detailing how consumers react to price changes.

Demand Curve

A demand curve plots the quantities demanded against price, illustrating the law of demand visually.
It slopes downward from left to right, confirming that increased prices lead to decreased demand.

Characteristics of Demand Curves

Demand curves vary between different products, appearing either steep or flat, and can be straight or curved.
All demand curves share the trait of downward slope, adhering to the law of demand principles.

Distinction Between Demand and Quantity Demanded

Demand represents the entire relationship outlined by the demand curve, capturing various price levels.
Quantity demanded is specific to a point on this curve, reflecting a single price-quantity pair.

Example: Market for Gasoline

A specific demand schedule for gasoline shows quantities demanded at set price points, ranging from $1.00 to $2.20 per gallon.
Example values illustrate the decrease in quantity demanded with rising prices, reinforcing demand principles.

Demand Measurement

Prices are measured in dollars per gallon, while quantity demanded is tracked in millions of gallons over designated time frames (daily, yearly, etc.).

Graphing Demand

Demand curves use quantity on the horizontal axis and price on the vertical axis, a standard exception in graphing independent versus dependent variables.
The analysis of demand relies on constant factors, meaning it assesses changes solely due to price variations without other influences.

Summarizing the Law of Demand

The graphical representation and schedules show clear inverse relationships: as prices rise, quantities demanded lessen, and vice versa.

Description

Test your knowledge on the law of demand with this set of flashcards. Each card covers key terms and their definitions, helping you understand the relationship between price and quantity demanded. Perfect for students looking to reinforce their economics knowledge.