All Flashcards
What is 'demand' in economics?
The willingness and ability of consumers to purchase a good or service at various prices.
What is 'quantity demanded'?
A specific amount of a good or service consumers are willing and able to purchase at a particular price.
What is the 'Law of Demand'?
The inverse relationship between price and quantity demanded: as price increases, quantity demanded decreases, and vice versa.
Define 'normal good'.
A good for which demand increases as consumer income increases.
Define 'inferior good'.
A good for which demand decreases as consumer income increases.
Define 'substitute goods'.
Goods that can be used in place of one another; if the price of one increases, the demand for the other increases.
Define 'complement goods'.
Goods that are used together; if the price of one increases, the demand for the other decreases.
What is meant by 'change in demand'?
A shift of the entire demand curve, caused by factors other than price.
What is meant by 'change in quantity demanded'?
A movement along the demand curve, caused only by a change in the price of the good.
Define 'equilibrium price'.
The price at which the quantity demanded equals the quantity supplied.
Differentiate between a change in demand and a change in quantity demanded.
A change in demand is a shift of the entire curve due to factors other than price. A change in quantity demanded is a movement along the curve due to a change in price.
What is the key difference between normal and inferior goods in relation to changes in income?
Demand for normal goods increases with income; demand for inferior goods decreases with income.
Contrast the effect of a price increase of good A on the demand for its substitute versus its complement.
Price increase of good A increases demand for its substitute but decreases demand for its complement.
Compare the effects of an increase in the number of buyers versus a change in consumer tastes on the demand curve.
Both cause the demand curve to shift to the right (increase in demand), but for different reasons.
Compare and contrast the effect of a price increase on quantity demanded versus supply.
Price increase decreases quantity demanded (moves along demand curve), but increases quantity supplied (moves along supply curve).
Compare the effects of a change in price of a good and a change in income on the demand curve.
A change in price causes a movement along the demand curve. A change in income causes the entire demand curve to shift.
Differentiate between substitute goods and complement goods.
Substitute goods can be used in place of each other, while complement goods are used together.
Compare the effect of an expected future price increase versus a future price decrease on current demand.
Expected future price increase raises current demand. Expected future price decrease lowers current demand.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual markets and decisions, while macroeconomics studies the economy as a whole.
Compare the effects of a change in consumer income on the demand for a normal good versus an inferior good.
An increase in consumer income will increase the demand for a normal good, while it will decrease the demand for an inferior good.
On a demand curve, what does a movement along the curve represent?
A change in quantity demanded due to a change in price.
On a demand curve, what does a shift of the entire curve represent?
A change in demand due to a change in a determinant of demand (INSECT).
If the demand curve shifts to the right, what does this indicate?
An increase in demand.
If the demand curve shifts to the left, what does this indicate?
A decrease in demand.
How would you graphically represent the effect of an increase in income (for a normal good) on the demand curve?
Shift the demand curve to the right.
How would you graphically represent the effect of an increase in the price of a complement on the demand curve?
Shift the demand curve to the left.
How would you graphically represent the effect of a decrease in the price of a substitute on the demand curve?
Shift the demand curve to the left.
How would you graphically represent the effect of an expected future price decrease on the current demand curve?
Shift the demand curve to the left.
How does a change in consumer tastes, favoring a product, affect the demand curve?
The demand curve shifts to the right.
How does a change in number of buyers, increasing the number of consumers, affect the demand curve?
The demand curve shifts to the right.