Demand

• What is demand?

  The amount demanded by consumers at given prices over a certain period of time
• Why is demand different from want?

  Because demand must include being able to pay for the good or service
• What is the shape of the demand curve?

  Downward sloping
• What does the demand curve demonstrate?

  The relationship between price and quantity demanded
• What is the substitutuion effect?

  When there is a rise in price, the consumer whose income is likely to have stayed the same, will tend to buy more low price goods and less high price ones
• What is the income effect?

  When there is a rise in price, consumers will suffer a fall in in their real incomes, so there is less quantity demanded of normal goods
• What do movements along the demand curve show?

  Changes in the quantity demanded as a result of changes in price levels
• How do changing real incomes cause a shift in the demand curve?

  An increase in incomes would result in an increase in demand for most goods and services, causing a rightward shift in the demand curve
• How does size or age distribution of the population cause a shift in the demand curve?

  An increase in the size of the population causes an increase in demand for most goods and services
• How do tastes, fashion and preferences cause a shift in the demand curve?

  Certain trends which increase in popularity will experience a rightward shift in the demand curve
• How do prices of substitutes or compliments cause a shift in the demand curve?

  If there is a rise in price for one good, another related one will experience an increase in demand, and vice versa
• How does advertising or promotions cause a shift in the demand curve?

  A successful advertising campaign would cause demand to increase
• How do interest rates cause a shift in the demand curve?

  Interest rates affect the cost of borrowing money, so if it is higher, the demand for goods and services will decrease
• What is total utility?

  The total satisfaction gained from the total amount of a product consumed
• What is marginal utility?

  The change in utility from consuming one more unit of the product
• What is the law of diminishing marginal utility?

  As a person consumes more of a product, the marginal utility decreases - therefore, consumers are prepared to pay less as their consumption increases