1.2.2- Demand

Question 1

What is demand?

Answer 1

The ability and willingness to buy a particular good at a given price and at a given moment in time

Question 2

What is a movement down the demand curve called?

Answer 2

An extension of demand

Question 3

What is a movement up the demand curve called?

Answer 3

A contraction in demand

Question 4

What factors shift the demand curve? (PIRATES)

Answer 4

-population
-income
-related goods
-advertising
-tastes and fashions
-expectations
-seasons
-gov legislation

Question 5

How does income affect demand?

Answer 5

-If income increases, people can afford to buy more of the product
-however for some goods, an increase in income leads to a fall in demand

Question 6

How does related goods influence demand?

Answer 6

-An increase in the price of substitutes would increase demand for the competition
-an increase in the price of complements would decrease demand for both goods and services

Question 7

How does advertising influence demand?

Answer 7

-If advertising is successful demand will increase, and it increases consumer loyalty

Question 8

How does expectations influence demand?

Answer 8

• If people expect a shortage, or a future price rise, demand will increase

Question 9

How does seasons influence demand?

Answer 9

-some products demand is affected by the weather

Question 10

How does gov legislation influence demand?

Answer 10

For example, when car seats were made a legal requirement, demand increased

Question 11

What is derived demand?

Answer 11

When the demand for one good is linked to the demand for a related good as it is required as a factor of production. Eg steel is derived from the demand of cars

Question 12

What is composite demand?

Answer 12

When the good demanded has more than one use
Eg. Milk can be used for lots, so more demand for cheese, the less butter that can be supplied

Question 13

What is joint demand?

Answer 13

When goods are bought together
Eg. Pasta and pasta sauce

Question 14

What is effective demand?

Answer 14

Demand for a good or service from consumers that is backed up with the ability to pay

Question 15

What is potential/ latent demand?

Answer 15

Consumers demand it but don’t have an ability to pay

Question 16

What is diminishing marginal utility?

Answer 16

The satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed, so consumers are less willing to pay high prices at high quantities

Question 17

What are inferior goods?

Answer 17

Cheaper products that have less demand when income is high

Question 18

What is speculative demand?

Answer 18

Potential buyers are interested in the potential rise in marker price leading to a profit

Question 19

What is ostentatious consumption?

Answer 19

Luxurious items where satisfaction comes from knowing the price of the good and being able to flaunt consumption of it to others

Question 20

What is the law of demand?

Answer 20

The quantity demanded decreases when price increases

Question 21

What is the income effect?

Answer 21

As prices go up, our purchasing power decreases so demand contracts

Question 22

What is the substitution effect?

Answer 22

As prices go up, other goods are more competitive so we switch our consumption to those goods, so demand contracts for that good