2.1 Demand

Question 1

What is demand

Answer 1

The quantity of goods and services consumers are willing to and able to purchase at different possible prices during a particular time period

Question 2

Law of demand

Answer 2

Negative relationship between the price of a good and its quantity demanded over a particular demand

E.x if price increases, quantity demanded decreases

Question 3

Market demand

Answer 3

Sum of all individual demands for a good

Question 4

What causes a movement along the demand curve?

Answer 4

Changes in price

Question 5

What causes a shift of the demand curve

Answer 5

non-price determinants

Question 6

Non-price determinants of demand

Answer 6

• income of normal/inferior goods
• preferences and tastes
• Price of substitute goods
• Price of complementary goods
• number of consumers

Question 7

Explain the non-price determinant of income

Answer 7

Income of normal good - when incomes increase, so does demand

Income of inferior good- when income increases, demand falls

Question 8

Explain the non-price determinant of preferences/tastes

Answer 8

If preferences change in favor of a product, demand will increase

Question 9

Explain the non-price determinant of substitute goods

Answer 9

Two goods are substitute goods if they satisfy a similar need

If price of good A increases, demand for good B will increase, as it is cheaper to purchase

Question 10

Explain the non-price determinant of complementary goods

Answer 10

Two goods that are used together

In good A experiences a fall in price, then good B’s demand will increase.

Question 11

Explain the non-price determinant of number of consumers

Answer 11

If there is more consumers, there will be more demand

Question 12

What is utility

Answer 12

The satisfaction consumers gain from consuming something

Question 13

What is the law of diminishing marginal utility

Answer 13

As consumption of a good increases, marginal utility the consumer receives will decrease with each good consumed, and become less willing to purchase good.

This underlines the law of demand

Question 14

What is the substitution effect

Answer 14

If the price of a good falls, the consumer purchases more of the less expensive good, increasing quantity demanded

Question 15

What is the income effect

Answer 15

A fall in price increases consumers real income (purchasing power), resulting in an increase in quantity demanded