🥇international economics review

key term - Demand curve

Definition

A demand curve is a graphical representation that shows the relationship between the quantity of a good or service demanded by consumers and its price. Typically, this curve slopes downward, indicating that as prices decrease, the quantity demanded tends to increase, reflecting consumer behavior and preferences.

5 Must Know Facts For Your Next Test

  1. The demand curve shifts when there are changes in non-price factors such as consumer income, preferences, or the prices of related goods.
  2. Movements along the demand curve occur due to changes in the price of the good itself, while shifts in the curve represent changes in demand at all price levels.
  3. A perfectly inelastic demand curve is vertical, indicating that quantity demanded does not change regardless of price variations.
  4. In contrast, a perfectly elastic demand curve is horizontal, meaning that consumers will only buy at one specific price and none at all if it rises.
  5. Understanding the demand curve is crucial for analyzing how various trade policies can affect market dynamics and consumer behavior.

Review Questions

  • How does a shift in the demand curve affect market equilibrium?
    • A shift in the demand curve can significantly alter market equilibrium by changing the quantity demanded at every price level. For example, if consumer preferences shift favorably towards a product, the demand curve will shift to the right, leading to a higher equilibrium price and quantity. Conversely, if there is a decrease in consumer income or preference for substitutes increases, the demand curve will shift to the left, resulting in a lower equilibrium price and quantity. This interplay highlights how external factors influence market conditions.
  • Evaluate the impact of government trade policies on the demand curve for imported goods.
    • Government trade policies, such as tariffs or quotas, can significantly impact the demand curve for imported goods. For instance, imposing tariffs on imports raises their prices, which can shift the demand curve for those goods to the left as consumers may reduce their purchases due to higher costs. Additionally, if a government provides subsidies for domestic products, this could further shift consumer preference away from imports towards locally produced goods. Such policy decisions illustrate how trade regulations directly influence consumer choices and market dynamics.
  • Analyze how changes in consumer expectations can lead to shifts in the demand curve and discuss its implications for international trade.
    • Changes in consumer expectations about future prices or availability can lead to significant shifts in the demand curve. If consumers anticipate that prices will rise soon, they may increase current purchases, shifting the demand curve to the right. This behavior not only affects local markets but also influences international trade patterns; countries may experience increased imports to meet sudden surges in demand. Understanding these expectations is crucial for businesses and policymakers, as they must adapt strategies to respond to dynamic consumer behavior and international market conditions.