2.1 DEMAND

Question 1

what does the law of demand state

Answer 1

as price of a product increases (ceteris paribus), the quantity demanded will always decreases

Question 2

what is demand

Answer 2

the amount of good or service consumers are willing and able to buy in a given MARKET, at a given PRICE in a given TIME PERIOD

Question 3

what is a market

Answer 3

an area over which buyers and sellers come together to negotiate the exchange of a good or service (eg. market of chocolate is the market for a good whereas market for teachers is market for a service)

Question 4

what are the assumptions underlying the law of demand

Answer 4

1 income effect

#2 substitution effect
#3 diminishing marginal utility

Question 5

what is real income

Answer 5

refers to what consumers can buy with their income

Question 6

explain income effect

Answer 6

1. price of a product eg. sugary drinks increases
2. consumers then have less real income (can buy less of the product eg. sugary drinks with their income)
3. so consumers buy less product eg. sugary drinks
4. results in decrease of quantity demanded

Question 7

explain substitution effect

Answer 7

1. price of product eg. sugary drinks increase
2. consumers choose to get a substitute instead eg. water as it gives them more satisfaction for the money they pay
3. less sugary drinks r bought
4. quantity demanded decreases

Question 8

explain diminishing marginal utility

Answer 8

the more of a product the consumer buys, the less satisfaction they get from consuming additional units
eg. the more strawberries u buy the less ur willing to pay the same price again and again for it

Question 9

what does change in price do to a demand curve

Answer 9

causes movement ALONG the demand curve

Question 10

what is a non price determinant of demand

Answer 10

factors other than price that affect the amount consumers are willing and able to buy (assuming ceteris paribus)
eg. income, preference, future price expectations

Question 11

what is the relationship between an individual consumers demand and market demand (calculation)

Answer 11

total market demand = sum of all individual consumer demand

Question 12

normal goods vs inferior goods

Answer 12

normal goods r luxuries eg phones
inferior goods r cheaper eg tesco value cheese

Question 13

shifts of the demand curve

Answer 13

if demand increases D shifts right
if demand decreases D shifts left

Question 14

what would happen to the demand curve of the market of an inferior [market] good if income [non price determinant] increase

Answer 14

D would shift left
- people are more able to buy normal goods rather than inferior goods as they have more real income
- people less willing to buy the inferior good

Question 15

all the non price determinants

Answer 15

• income
• tastes/preferences
• future price expectations
• price of related goods
• number of consumers