1.2.2: Demand

Question 1

What is demand?

Answer 1

• The quantity of goods and services that consumers are willing and able to purchase at various prices.

Question 2

What is the law of demand?

Answer 2

• The quantity of goods and services purchases vary inversely with price.
• If the price of a good increases, the demand for it decreases and vice versa.

Question 3

What is the pneumonic for the factor which affect demand?

Answer 3

• PIRATES
• P=Population
• I= Income
• R= Related goods (compliments & subsitutes)
• A=Advertising
• T= Tastes
• E= Expectations
• S
  Seasonal factors

Question 4

How does population affect demand?

Answer 4

• If population rises, demand for goods and services would increase.
• This is because there are more people in a country/ nation, therefore there will be more people who would want a good.
• This causes the demand curve to shift to the right.

Question 5

How does income affect demand?

Answer 5

• If income of consumers increases, demand increases because more people can afford to buy those products. (causing a shift to the right) and vice versa is income decreases, demand decreases.
• However, for some goods, an increase in income can lead to a fall in demand and vice versa (elasticity of demand).

Question 6

How do related goods (compliments & subsitutes) affect demand?

Answer 6

• If the price of a substitute of good increases, the demand for the original good increases and vice versa, as the alternative/ subsititute is more expensive.
• If the price of a complementary good decreases, the demand for the original good would also increase, since these goods go together. (eg printers & printer ink)

Question 7

How does advertising affect demand?

Answer 7

• if a firm carries out a successful advertising campaign, demand is likely to increase.
• If a competitor firm carries out a successful advertising campaign demand for the first firm will fall.

Question 8

How does taste/ fashion affect demand?

Answer 8

• If consumers have a taste for a good/ if a product becomes more fashionable, we expect demand to increase and vice versa.

Question 9

How do expectations affect demand?

Answer 9

• If people expect a shortage of something, or that the price of the good/ service will increase in the future, the demand for that product will increase.
• If people expect that price will fall in the future, demand will decrease.

Question 10

How do seasonal factors affect demand?

Answer 10

• For example some products have their demand affect due to weather.
• eg In hot summers, the demand for icecreams and suncream would increase.
• With rainy weather, the demand for umbrellas would likely increase.

Question 11

How can government legislation affect demand?

Answer 11

• If the government make a good/ service a legal requirement, the demand for that good will increase.
• eg When the government made it a legal requirement that young children must sit in car seats, the demand for car seats went up.

Question 12

What is total utility?

Answer 12

• It represents the satisfaction gained by a customer as result of their overall consumption of a good

Question 13

What is marginal utility?

Answer 13

• It represents the change in satisfaction resulting from the consumption of the next unit of a good.

Question 14

What does the Law of Diminishing Marginal Utility state?

Answer 14

• It states that the satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed ( assuming the consumption of all other goods remains constant)

Question 15

Why is the demand curve downward sloping?

Answer 15

• The Law of Diminishing Marginal Utility
• If more of a good is consumed, there is less satisfaction derived from the good.
• This means that consumers are less willing to pay high prices at high quantities, since they are gaining less satisfaction.