Cards (8)

  • Demand: Ability and willingness to buy a certain good at a certain price at a given moment in time
  • Movements along the demand curve are caused by a change in price
  • If price increases, there is a contraction in demand and if it decreases there is an extension in demand
  • A shift to the left is a decrease in demand, and a shift to the right is an increase in demand
  • Factors causing demand curve to shift (PIRATES)
    Population: More people means more demand
    Income: For most goods if income increases, demand increases
    Related goods: If goods are complements increase in demand of one good does the same for another
    Advertising: Good advertising increases demand
    Taste/Fashion
    Expectations
    Seasons: For example ice cream has higher demand in summer
  • Marginal utility: Satisfaction gained from consumption of an additional unit
  • Law of diminishing marginal utility: Satisfaction derived from consumption of an additional unit of a good will decrease per extra unit consumed
  • The reason the demand curve slopes down is the law of diminishing marginal utility, as less satisfaction is derived from higher quantities