Economics Unit 1

Demand: is the quantity of a good or service that consumers choose to buy at each price over a period of time. It is NOT the same as wants, it has to be backed up buy the ability to buy.

Influences of demand and descion

Price

Price of alternatives

Income

Preferences e.g. power of advertising

Demand and Price

We consider price. We have to make sure all other factors remain constant (ceteris paribus)

Law of demand

The law of demand syas there is an inverse relationship between price and demand. E.g. As price goes up demand goes down etc.

Contraction in demand

happens when price rises and demand falls

Extention in demand

happens when price falls and demand rises

Why is it negatively sloping

Income effect( price rises i have less to income to spend d falls)

*Price falls ( more income to spend) d rises

Subsitution effect - p goes up i find an alternative.


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  • Created by: lucy
  • Created on: 15-04-14 14:29

The nature of demand

Shifts in the demand curve

Real incomes - our income has gone up, increasing our demand for products e.g. strawberries, real incomes so after inflation.

Size and Age of population - If population goes down, demand for most goods will fall. Can consider further, what happens if popilation of older people goes up? demand for wheelchairs, carehomes etc goes up.

tastes and fashions - product suddenly becoming popular demand increases. e.g. onesie.

Price of substitute and compliments - substitute is a close alternative so if price falls for an alternative we may switch our demand to that e.g. price of lamb goes down; we buy lamb instead of beef.

Promotion and advertising - succesful promitions lead to a rise in demand,

A change in interest rates - Less income to spend on other things cost of borrowing money goes up, mortgage repayments rise demand for house decreaes, disposable income decreases.


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Elasticities

Price elasticity of demand

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