1.2.2 Demand

Question 1

Demand

Answer 1

the amount that consumers are willing and able to buy at any given price in a given period of time

Question 2

Demand curve

Answer 2

show the relationship between price and quantity demanded.

- it slopes downwards (left to right) since, as price falls, people are more willing to buy a good

Question 3

Demand curve example

Answer 3

• At price P1, a quantity of Q1 is demanded.
• At a lower price of P2, a larger quantity of Q2 is demanded
• This is an expansion of demand
• Whereas at the higher price of P3, a lower quantity of Q3 is demanded
• This is a contraction of demand

Question 4

Change in price in a demand curve

Answer 4

leads to movement along the demand curve not a shift (a contraction in demand)

Question 5

A contraction in demand

Answer 5

When the price rises and the quantity demanded falls it should be referred to as

Question 6

What causes a right shift in the demand curve?

Answer 6

When the price stays the same, but quantity increases (e.g ads, competition)

Question 7

Factors affecting demand (cause a shift)

Answer 7

P: Demographic (age distribution of population)
A: the price of the good itself (absolute price)
S: (related goods) The price of substitutes (competition)
Complements (complementary goods)
T: Taste & preferences
A: Ads
I: (real) income
S: Seasonality

Question 8

Complement

Answer 8

If you buy a sandwich, you might buy a drink too

Question 9

Derived demand

Answer 9

when a good/factor of production is demanded for another reason (demand for another good)
(E.g the demand for bricks is derived from from the demand for the building of new houses, the demand for labour is derived from the goods the labour produces)

Question 10

Composite demand

Answer 10

When the good demanded for multiple uses (e.g assuming there is a fixed supply of milk, an increase in the demand for cheese will mean that more cheese is supplied and less butter)

Question 11

Diminishing marginal utility

Answer 11

as more units of goods/services are consumed each additional unit will give less satisfaction than the last (marginal utility will decrease)
(This helps understand the negative sloping demand curve)

Question 12

Marginal utility

Answer 12

the additional utility/amount of satisfaction, gained from each additional unit of consumption

Question 13

Diminishing marginal utility example

Answer 13

• If a person buys 5 chocolate bars, the first chocolate bar will benefit the consumer more, since it gives more satisfaction/satisfies their needs more
• Therefore the consumer is willing to pay more for it
• The second bar will satisfy the consumer less, since they have less need for it, so the consumer is willing to pay less for it
• This carries on and the satisfaction decreases with each additional unit

Question 14

Diminishing marginal utility graph

Question 15

How does diminishing marginal utility influence the shape of the demand curve?

Answer 15

If there is a diminishing marginal, then people’s willingness to pay will also decline so the demand curve will slope downwards.