Economics study notes for demand external level 1
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| What is demand? | The quantity a consumer is willing and able to purchase at a range of prices
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| What is the law of demand? | As the price decreases the quantity demand increases. Ceteris Paribus applies
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| Describe a change in quantity demanded | Caused only by a change in the price of the good itself. Ceteris Paribus applies
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| Why does demand slope downwards to the right? | As the price of the good falls it becomes more affordable and it is also relatively cheaper compared to substitutes
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| What is market demand? | The horizontal summation of individual demand curves or schedules at each and every price.
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| Describe a change in demand | All factors can now change because Ceteris Paribus has been removed.
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| What happens to the curve if demand increases and why? | The curve shifts to the right and customers are more willing and able to purchase the good at each and every price
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| What are the components/factors that shift demand? | Change in income, Change in tastes/fashion, Change in the price of a substitute and Change in the price of a complement
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| Describe change in income | Shifts demand on a curve.Incomes can change because workers may get a payrise. Income can also change if the government changes the income tax rate (PAYE)
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| What happens if PAYE decreases? | Change in income
If PAYE decreases the households disposable income increases so individuals can now afford to buy more at each and every price.
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| Describe Normal and Inferior goods had how they increase income | Change in income
Goods can be normal or inferior; Normal goods increase income and quantity demanded. Inferior goods increase income and decrease quantity demanded because as income rises, customers can afford to buy better quality goods.
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| Describe change in tastes/fashion | If there is a change in taste/trend towards the product, it increases demand. It can also be away from the product which will decrease demand. This can be influenced by seasons, media, advertising and peers.
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| Describe change in the price of a substitute | A substitute can be used in place of another good. If the price of a a substitute falls, there will be decreased demand for the original product. This is because the substitute price is now relatively cheaper.
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| Describe change in the price of a complement | Complements are used/consumed together. A decrease in the price of a complement will result in an increase in demand for the original product
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| What are the flow on effects for a change in quantity demanded? | Calculate total spending
Decrease spending on a substitute
Increase demand for a complement
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| Describe the flow on effect of calculate total spending | Calculate before and after (pxqd) etc
State if it increase or deceases
If it is a decrease then there is more income left over to spend on other goods and services. If it is an increase than there is less income to spend on other goods and services
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| Describe the flow on effect of decrease spending on a substitute | Change in quantity demanded
Use an example and then state why eg) because it is now relatively cheaper
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| Describe the flow on effect of increase demand for a complement | Change in quantity demanded
Use an example and then state why eg) because an increase in spending on bread means you need more butter
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| What are the flow on effect for a change in demand? | Spending on a substitute
Spending on a complement
Flow on behaviour
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| Describe the flow on effect for spending on a substitute | Change in demand
Use an example and then state why eg) because it is now relatively cheaper
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| Describe the flow on effect for spending on a complement | Change in demand
Use an example and then state why eg) because an increase in spending on bread means you need more butter
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| Describe the flow on effect for flow on behaviour | Change in demand
use and example such as health issues or more popular and state what is going to happen to this person?
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