1.2.1 Demand

Question 1

what is demand

Answer 1

demand refers to the number of goods/services customers are willing to buy at a given price
- there is an inverse relationship between the quantity by customers and the price
- as the price increases, the quantity demanded decreases
- as price decreases, the quantity demanded increases

Question 2

What are non-price factors affecting demand?

Answer 2

• price of other goods: complements & substitutes
• advertising & branding
• changes to income
• changing demographics
• external shocks
• seasonality
• changes in fashion & tastes

Question 3

1. Change in the price of substitutes

Answer 3

• substitute goods are replacement goods
• increase in demand for substitutes, decreases demand for original

Question 4

2. Change in the price of complementary goods

Answer 4

• complementary goods are goods that are consumed together
• increase in price of one decreases the demand of the other

Question 5

3. Changes in consumer income

Answer 5

• as a consumer’s income rises, demand for normal goods increases
• as a consumer’s income falls, demand for inferior goods increases

Question 6

4. Fashion, tastes & preferences

Answer 6

• if products become more fashionable, demand for them increases

Question 7

5. Advertising & branding

Answer 7

• if more money is spent of advertising or branding, then this increases consumer awareness and brand loyalty

Question 8

6. Demographics

Answer 8

• if the structure or size of a country’s population changes, then the demand for products will also change

Question 9

7. Seasonality

Answer 9

• demand rises at different times of the year

Question 10

8. External shocks

Answer 10

• an unexpected event can change the demand