Unit 1: Demand

• Demand definition


  Quantity of a product a consumer is willing and able to purchase at a given price and given time frame, ceteris paribus
• When is demand effective?

  When the consumer is willing and able to purchase
• Law of demand


  There's an inverse relationship between price and quantity demanded
• Contraction

  Movement on the demand curve caused by an increase in price and decrease in QD: Movement up the curve
• Extension

  Movement on the demand curve caused by a decrease in price and increase in QD: Movement down the curve
• Which concepts explain why the demand curve slopes downwards?

  The Income Effect and the Substitution Effect
• What causes movements on a demand curve?

  A change in price and QD as a result of changes in price factors only
• What causes a shift of the demand curve?

  Changes to non-price factors (conditions of demand)
• Conditions of demand 


  Non-price factors that cause a change in demand
• Curve shifts to the right

  Increase in demand
• Curve shifts to the left

  Decrease in demand
• What is the income effect?

  When consumers' incomes are considered in demand of products
• What is the substitute effect?

  Explains the link between prices and whether consumers will shift their demand
• What should be considered when analysing real income as a factor that changes demand?

  Whether the good being analysed is inferior or a luxury
• Marginal utility definition


  Additional satisfaction gained from the consumption of an additional product
• Law of diminishing marginal utility

  As additional products are consumed, the utility of the next unit is lower than the utility from the previous unit
• Why is utility gained from the first product higher than the second?

  When the product is introduced, the utility is high and customers are willing to pay a high price. As more products are consumed the utility decreases as the customers don't want to pay a high price.
• What does the Law of diminishing marginal utility explain?

  Why the demand curve is downward sloping
• What is the acronym of the conditions of demand?

  PASIFIC
• What does each letter of the acronym stand for?

  P-Population, A-Advertising, S-Substitute's Price, I-Income, F-Fashion/Trends, I-Interest rates, C-Complement's Price