Demand Theory (Quizlet Revision Activity)

Some key demand theory terms to revise

• Composite demand: Demand for a product that has more than one use e.g. demand for milk, land, straw
• Derived demand: Where demand for a factor of production is linked to demand for another product
• Effective demand: Demand backed by ability to pay
• Income effect: When a fall in price increases a consumer's real purchasing power
• Joint demand: Describes the demand for two complements e.g. smartphones and apps
• Law of demand: Inverse relationship between price and demand
• Off-peak demand: Periods of time when demand for consumers is below normal levels. Firms often lower the price to stimulate demand.
• Real disposable income: Income adjusted for inflation after direct taxes
• Seasonal demand: Demand that varies according to the time of year e.g. spending on jewellery and holidays
• Speculative demand: Demand for financial assets where investors expect the price to rise in the future
• Substitution effect: When a fall in price makes one product relatively cheaper to alternatives
• Veblen Good: A good with a positively sloped demand curve. As price increases, people buy more of these goods to demonstrate their social status.

In this video we explain two possible exceptions to the law of demand, namely Giffen Goods and Veblen Goods.