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Description
Flashcards by Kshira Mushunuri, updated more than 1 year ago
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Created by Kshira Mushunuri
almost 8 years ago
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| Question | Answer |
| What constitutes demand ? What are the components in the definition of demand ? | Demand is desire backed by the willingness to pay. The components of the definition of demand are (things demand is expressed in relation to): 1. Desire 2. Price 3. Time period |
| What are the different types of demand ? | 1. Individual and Market demand 2. Ex Ante and Ex Post Demand 3. Joint Demand 4. Derived Demand 5. Composite Demand |
| What are Individual and Market Demand? (Keywords only written) | INDIVIDUAL DEMAND: individual customer, willing to buy , given qty, given price, given time MARKET DEMAND total qty, all households, given price, given time |
| Ex Ante and Ex Post Demand meanings (keywords only) | EX ANTE amount of goods consumers are willing to buy during a specific time period EX POST amount of goods consumers ACTUALLY purchase during a specific time period |
| things to remember about Joint Demand | the demand for two or more goods which are used together - the demand for goods having Joint demand changes simultaneously - a rise in the price of one good leads to a fall in the demand for the other good and vice versa |
| Derived Demand | Derived Demand generally relates to the demand for FoPs. This demand for FoPs is derived out of the demand for the goods produced by these FoPs. |
| Derived Demand meaning and example | demand for a commodity that arises out of the demand for some other commodity Example : Demand for labour in a textile mill is derived out of the demand for cloth |
| Composite Demand | A change in the price of a commodity would lead to a change in its demand, because its demand for all the uses would change. An increase in the demand for one use, decreases its availability for another use. |
| Composite Demand- Meaning | Demand for goods that have multiple uses is called composite demand. |
| Determinants of Demand | 1. Price 2. Income 3. Consumer's tastes and preferences 4. Prices of related goods 5. Consumer's expectations 6. Consumer's Credit Facilities 7. Size and Composition of Population 8. Distribution of Income 9. Government Policy |
| PRICE | Normal Commodities: As the price of a commodity increases, it's demand falls and vice versa. price and demand share an inverse relationship |
| INCOME | Normal Goods: as the income of the consumer increases, the demand for the commodity also increases Inferior Goods: as income increases, demand falls Inexpensive Goods of necessities: quantity purchases increases with increase in income upto a certain level, and then stabilises. (e.g.- salt, matchboxes) |
| PRICES OF RELATED GOODS a. Substitute Goods | 1. Substitute Goods: goods that satisfy the same type of want. As the price for one good of this type increases, the price for the other good falls, and the demand for that good increases |
| PRICES OF RELATED GOODS b. Complementary Goods | 2. Complementary Goods: two or more combinations of goods that are consumed together. As the price for one good of this type increases, the price for the other good also increases, and the demand for both goods falls. |
| CONSUMER'S EXPECTATIONS | If the consumer expects a fall in future prices, they will prefer to buy then. Therefore, the present demand falls. If the consumer expects a rise in the future, they will hoard the commodity now, causing demand to increase. |
| CONSUMER CREDIT FACILITIES | If the consumer is able to get credit easily, they will be tempted to buy the commodities they could not otherwise afford, thus increasing demand. |
| DISTRIBUTION OF INCOME | If the distribution of income is equal, there will be less demand for luxury goods and more demand for essential goods. If the distribution of income is unequal, there will be more demand for luxury goods and less demand for essential goods. |
| GOVERNMENT POLICY | Lower government interference in consumer goods and higher interference in consumer improvement gives way to increase in demand |
| LAW OF DEMAND | The Law of Demand states that, ceteris paribus, the quantity demanded of a commodity increases when its price falls, and decreases when its price rises. |
| ASSUMPTIONS | 1. There should be no change in income 2. No change in tastes and preferences 3. No change in the rice of related goods 4. Size of the population mustn't change 5. Distribution of income should be constant 6. the commodity must be a normal commodity. |
| REASONS FOR THE DOWNWARD SLOPE OF THE DEMAND CURVE | 1. law of diminishing Marginal Utility MU= price 2. Income Effect real income falls due to rise in price 3. Substitution Effect effect of the change in relative prices of substitute goods on the QD |
| REASONS FOR THE DOWNWARD SLOPE OF THE DEMAND CURVE | 4. Increase in Number of Consumers |
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