2.1 Demand (DP IB Economics: SL): 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.
Define effective demand.
Effective demand is when a consumer is both willing and able to afford a good; wanting a good without being able to pay for it is not effective demand.
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.
True or False?
Economists draw demand curves as straight lines even though real demand data would form an actual curve.
True.
Economists use straight lines to make analysis easier, even though plotted demand data would form an actual curve.
Define market demand.
Market demand is the combination of all individual demand for a good or service, found by adding up individual demand at each price level.
What are the three assumptions underlying the law of demand?
The three assumptions are the income effect, the substitution effect and the law of diminishing marginal utility.
Define the income effect.
The income effect is the change in a consumer's purchasing power that results from a change in the price of a good.
Define the substitution effect.
The substitution effect is when consumers replace a good that has become relatively more expensive with one that has become relatively cheaper.
What is marginal utility?
Marginal utility is the additional satisfaction gained from consuming an additional unit of a good.
As more units are consumed, the law of diminishing marginal utility states the utility from each extra unit .
As more units are consumed, the law of diminishing marginal utility states the utility from each extra unit falls.
What happens to quantity demanded when price rises, ceteris paribus?
When price rises, quantity demanded falls, shown by a contraction and a movement up the demand curve.
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.
A fall in price causes a movement down the demand curve, known as an in quantity demanded.
A fall in price causes a movement down the demand curve, known as an extension in quantity demanded.
Define non-price determinants of demand.
The non-price determinants of demand are the factors that change the demand for a good or service, irrespective of the price level.
What effect does a change in a non-price determinant have on the demand curve?
A change in a non-price determinant causes a shift of the entire demand curve, rather than a movement along it.
There is a relationship between real income and the demand for goods and services.
There is a direct relationship between real income and the demand for goods and services.
True or False?
A decrease in real income shifts the demand curve to the left.
True.
A fall in real income reduces demand at every price level, shifting the entire demand curve to the left.
How does a rise in the price of a substitute good affect demand for the good it competes with?
A rise in the price of a substitute good increases the demand for the good it competes with, as there is a direct relationship between them.
When the price of printer ink rises, the demand for ink printers .
When the price of printer ink rises, the demand for ink printers decreases.
Define a shift in demand.
A shift in demand is a movement of the entire demand curve, caused by a change in a non-price determinant of demand.
How does an increase in a country's population size affect demand?
An increase in a country's population size increases demand, as there is a direct relationship between population size and demand.
True or False?
If consumers expect the price of a good to rise in the future, demand for it today will fall.
False.
If consumers expect the price to rise, they buy the good now, so demand today increases.
Why does an ageing population buy more hearing aids?
An ageing population buys more hearing aids because a change in the age distribution means different ages demand different goods and services.
If consumers expect the price of a good to fall in the future, they will to purchase it later, so demand decreases.
If consumers expect the price of a good to fall in the future, they will wait to purchase it later, so demand decreases.
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