demand

• What is the economic definition of demand?

  Willing and able to buy
• For demand to be effective in economics, consumers must be both willing and able to buy.
• The law of demand states that there is a direct relationship between price and quantity demanded.

  False
• What type of relationship does the law of demand describe between price and quantity demanded?

  Inverse
• A demand curve is always downward sloping because it illustrates the inverse relationship between price and quantity demanded.
• Order the steps of how a demand curve demonstrates the law of demand

  1️⃣ Initial price and quantity (P1, Q1)

  2️⃣ Price increases to P2

  3️⃣ Quantity demanded decreases to Q2

  4️⃣ Price decreases to P3

  5️⃣ Quantity demanded increases to Q3
• When the price increases and the quantity demanded decreases, it is called a contraction of demand.
• The assumption of ceteris paribus is essential for isolating the impact of price changes on demand.
• What is another term for an extension of demand?

  Expansion of demand
• A change in price causes a movement along the demand curve.
• What are the two effects that explain the inverse relationship in the law of demand?

  Income and substitution
• The income effect occurs because as prices rise, the purchasing power of income decreases.
• The substitution effect states that as prices rise, consumers switch to cheaper alternatives.
• What happens to the demand curve when a non-price factor increases demand?

  Shifts to the right
• A non-price factor that reduces demand will shift the demand curve to the left.
• Name three non-price factors that can shift the demand curve.

  Population, advertising, substitutes
• Good advertising will increase demand and shift the demand curve to the right.
• What is a substitute good?

  Rival good
• If the price of a substitute good increases, the demand for the original good will also increase.
• What happens to the demand for a normal good when income increases?

  Increases
• When income increases, the demand for an inferior good will decrease.
• Changes in fashion and taste can shift the demand curve independently of price.
• How do lower interest rates affect the demand for goods purchased with borrowing?

  Increase demand
• A complementary good is often bought with another good.
• If the price of a printer increases, the demand for printer ink will decrease.
• What type of movement along the demand curve occurs when the price of the good itself changes?

  Movement along the curve
• When non-price factors affect demand, the entire demand curve shifts.