2.1 Demand (DP IB Economics: HL): Flashcards
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Define demand.
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Cards in this collection (24)
Define demand.
Demand is the amount of a good or service that a consumer is willing and able to purchase at a given price in a given time period.
What does the law of demand state?
The law of demand states that there is an inverse relationship between price and quantity demanded, ceteris paribus.
Define effective demand.
Effective demand is demand backed by the ability to pay, meaning a consumer is both willing and able to purchase the good.
True or False?
A rise in price causes the demand curve to shift to the left.
False.
A change in price causes a movement along the demand curve (a contraction in quantity demanded), not a shift of the curve.
Define market demand.
Market demand is the combination of all the individual demand for a good or service, found by adding up the individual demand at each price level.
An increase in price leads to a movement up the demand curve, known as a in quantity demanded.
An increase in price leads to a movement up the demand curve, known as a contraction in quantity demanded.
What is the income effect?
The income effect is the change in a consumer's purchasing power resulting from a change in the price of a good or service.
Define the substitution effect.
The substitution effect is where consumers replace a good that has become relatively more expensive with one that has become relatively less expensive.
True or False?
A consumer who is willing but unable to afford a good is still counted as effective demand.
False.
Effective demand requires a consumer to be willing and able to pay; wanting a good without the means to buy it is not effective demand.
Define marginal utility.
Marginal utility is the additional satisfaction gained from the consumption of an additional unit of a product.
What does the law of diminishing marginal utility state?
The law of diminishing marginal utility states that as additional units are consumed, the utility gained from the next unit is lower than that gained from the previous unit.
A decrease in price leads to a movement down the demand curve, known as an in quantity demanded.
A decrease in price leads to a movement down the demand curve, known as an extension in quantity demanded.
Define non-price determinants of demand.
Non-price determinants of demand are the factors, other than price, that change the demand for a good or service and shift the entire demand curve.
What causes a shift of the demand curve?
A shift of the demand curve is caused by a change in a non-price determinant of demand, moving the whole curve left or right at every price level.
True or False?
An increase in advertising causes a movement along the demand curve.
False.
Advertising changes tastes and preferences (a non-price determinant), so it causes a shift of the entire demand curve, not a movement along it.
Define substitute goods.
Substitute goods are goods used in place of one another, so a rise in the price of one increases the demand for the other.
An increase in real income shifts the demand curve to the .
An increase in real income shifts the demand curve to the right.
How does a rise in the price of a substitute good affect demand for its alternative?
A rise in the price of a substitute good increases the demand for its alternative, reflecting a direct relationship.
Define complementary goods.
Complementary goods are goods consumed together, so a rise in the price of one decreases the demand for the other.
How does a rise in the price of a complementary good affect demand for the good it is paired with?
A rise in the price of a complementary good decreases the demand for the good it is paired with, reflecting an inverse relationship.
True or False?
If consumers expect the price of a good to rise in the future, current demand falls.
False.
If consumers expect the price to rise, they buy now, so current demand increases and the curve shifts right.
An increase in the number of consumers shifts the demand curve to the .
An increase in the number of consumers shifts the demand curve to the right.
What happens to demand when a good becomes more preferable to consumers?
When a good becomes more preferable, demand increases and the curve shifts right, reflecting a direct relationship between tastes and demand.
How does an expectation that prices will fall affect current demand?
An expectation that prices will fall causes consumers to wait, so current demand decreases and the curve shifts left.
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