1.2.2, Demand

Question 1

Define “Demand”

Answer 1

The quantity of a good/service consumers are willing and able to buy at a given price in a given time period

Question 2

What does effective mean when we talk about demand?

Answer 2

Consumers have to be both willing and able to buy a good/service

Question 3

What is the law of demand?

Answer 3

There is an inverse relationship between price and quantity demanded. As price increases, quantity demand decrease and vice versa.

Question 4

What do we assume when prices changes?

Answer 4

Ceteris Paribus

Question 5

What is ceteris paribus?

Answer 5

All other actors remain equal

Question 6

What is moving along the curve (increase) called?

Answer 6

Contraction of demand

Question 7

What is called moving along (decrease) the line?

Answer 7

Extention of demand

Question 8

Why causes the demand graph to have a downwards slope?

Answer 8

• Income effect
  (If prices go up, consumer income can’t stretch that far therfore we are less able to buy, so demand decreases)
• Substitution effect
  (As prices go up, other goods/services become more price competitive so we switch our demand into buying these goods/services instead, this is why demand contracts)

Question 9

What is not included when we talk about NON PRICE factors?

Answer 9

Ceteris Paribus

Question 10

What happens to demand curve when we include non price factors?

Answer 10

It shifts.

Question 11

What are the non price factors that effect demand?

Answer 11

P- Population
I- Income
C- Complementary goods (price of)
T- Tastes (including fashion and advertising)
S- Substitute goods (price of)

Question 12

How does population effect demand?

Answer 12

The greater the population, the higher the demand for a certain good/service and the smaller the population, the lower the demand

Question 13

How does Advertising effect demand?

Answer 13

If advertising is good then more people will buy product and demand will increase. Opposite for bad reviews in advertising.

Question 14

How does substitute price effect demand?

Answer 14

A rival good to something else or a good that’s in competition with something else. e.g. Coke and Pepsi

Question 15

Whats the effect of income on demand?

Answer 15

Normal goods: As income rises, demand increases and shifts the demand curve to the right. Opposite for income decrease. (Designer etc)
Inferior goods: As income goes up, demand decreases. Opposite for income decrease. (Fast food etc)

Question 16

How does fashion and taste effect our demand?

Answer 16

If fashion changes towards a certain good/service, it will make us buy more of it. If it moves away from good/service it will shift the curve to the left (decrease in demand).

Question 17

How does interest rate effect demand?

Answer 17

If interest rate goes down it makes it cheaper for consumers to borrow which will increase demands for goods/services. Opposite for if interest rate goes up.

Question 18

How does complement price effect demand?

Answer 18

If a product goes up in price the things that are connected to it will also go up in price. Printer ink will go up in price if the pice of printers increase