1.2.2 The Demand Curve

Question 1

What is demand?

Answer 1

The quantity of a good/service that consumers are willing and able to buy at a given price, at a particular time.

Question 2

What is a market?

Answer 2

A market is anywhere buyers and sellers can exchange goods or services.

Question 3

How is price determined by the market?

Answer 3

The price charged for and quantity sold of each good/service are determined by the levels of demand and supply in the market.

Question 4

What does the demand curve show?

Answer 4

The relationship between price and quantity demanded.
At any given point along the curve, it shows the quantity of the good/service that would be bought at a particular price.

Question 5

Demand curve diagram

Answer 5

Question 6

What is movement along the demand curve caused by?

Answer 6

Changes in price

Question 7

What is an extension in demand?

Answer 7

When demand increases along the curve

Question 8

What is a contraction in demand?

Answer 8

When demand decreases along the curve

Question 9

What does a downwards sloping demand curve show?

Answer 9

The higher the price charged for a good, the lower the quantity demanded.

In general, consumers aim to pay the lowest price possible for goods and services. As prices decease, more consumers are willing and able to purchase a good or service – so lower prices means higher demand.

Question 10

Diminishing marginal utility

Answer 10

As consumption increases, the marginal utility derived from each additional unit consumed decreases. (Where a consumer is less satisfied with every additional unit of good they are consuming). Example: All you can eat buffets – people want food less, the more they eat.

Question 11

What does a shift left of the demand curve show?

Answer 11

A decrease in the quantity demanded at every price.

Question 12

What does a shift right of the demand curve show?

Answer 12

An increase in the quantity demanded at every price.

Question 13

What are two main factors causing a shift in the demand curve?

Answer 13

• Changes in taste and fashion can cause the demand curve to shift to the right if something is popular, and to the left when it is out of fashion.
• Changes to people’s real income, the amount of goods/services that a consumer can afford to purchase with their income can affect the demand for different types of goods differently.

Question 14

Normal goods

Answer 14

Goods which people will demand more of if their real income increases.

This means that a rise in real income causes the demand curve to shift to the right – people want to buy more of the good at each price level.

For example, DVDs

Question 15

Inferior goods

Answer 15

Goods which people demand less of if their real income increases.

This means that a rise in real income causes the demand curve to shift to the left – people demand less at each price level since they’ll often switch to more expensive goods instead.

For example, Bus tickets or cheap clothing.

Question 16

Substitute goods

Answer 16

Goods which are alternatives to each other (e.g. beef and lamb).

An increase in the price of one good will decrease the demand for it and increase the demand for its substitutes.

Question 17

Complementary goods

Answer 17

Goods that are often used together and so have joint demand (e.g. burgers and rolls).

For examp,e If the price of strawberries increases, demand for them will decrease along with demand for cream.

Question 18

Derived demand

Answer 18

The demand for a good or a factor of production used in making another good/service.

For example, an increase in the demand for fencing will lead to an increased derived demand for wood.

Question 19

Veblen goods

Answer 19

Veblen goods are an anomaly in the laws of demand because as price increases, demand increases.

They are luxury goods. For example - Sports cars, diamonds