2.2 - Demand

Question 1

What is a market?

Answer 1

A set of arrangements that allows transactions to take place.

Question 2

What is demand?

Answer 2

A consumers willingness and ability to purchase a product or a service at a given price.

Question 3

What is Derived Demand?

Answer 3

Demand for a factor of production or good which derives not from the factor or good itself but from the goods it produces.

Question 4

What is Joint Demand?

Answer 4

is when products are complements for one another such that they are demanded together

Eg
Petrol and cars

When petrol prices decreases the demand for cars will increase as they are cheaper to runis

Question 5

What is Competitive Demand?

Eg luxury goods and substitutes

Answer 5

Demand for goods which are in competition with each other (substitutes)

Question 6

What two effects are witnessed when the price of a good rises?

Answer 6

Income effect and Substitution effect

Question 7

What is the Substitution effect?

Answer 7

An increase in the price of a good will encourage consumers to buy alternative goods. The substitution effect measures how much the higher price encourages consumers to use other goods, assuming the same level of income.

Question 8

What is the Income effect?

Answer 8

How the price change effects consumer income. If price rises, it effectively cuts disposable income and there will be lower demand.

Question 9

What is Composite Demand?

Answer 9

Demand for a good that has multiple uses.

Question 10

What is an expansion?

Answer 10

When there is a fall in price there is a movement along the demand/supply curve resulting in an increase in demand/supply.

Question 11

What is a contraction?

Answer 11

When there is an increase in price there is a movement along the demand/supply curve resulting in a decrease in demand/supply.

Question 12

What are the factors that can shift demand?

Answer 12

Population
Advertising
Substitutes
Income
Fashion and trends
Interest rates
Complementary goods

Question 13

What does demand have to be in economics?

Answer 13

Demand has to be effective. Consumers have to be willing and able for demand to exist.

Question 14

What is the law of demand?

Answer 14

There is an inverse relationship between price and quantity demanded. As price increases, Qd decreases and vice versa.

Question 15

What do we assume in the law of demand?

Answer 15

Ceteris Paribus, all other things being equal.

Question 16

What explains the downward slope of the demand curve?

Answer 16

The income effect and the substitution effect.

Price higher = lower demand & more likely to use substitute good
Lower price = higher demand

Question 17

What do non-price factors do to the demand curve?

Answer 17

They shift the demand curve, completely independent of price. Demand either extends or contracts, but importantly at the same price, P1.

Question 18

What is a Normal good?

Answer 18

As incomes rise, demand for normal goods will increase. They can be goods such as cars, designer clothing and fine dining.

Question 19

What is an Inferior good?

Answer 19

As incomes decrease, demand for inferior goods increase. They can be goods such as fast food and holidaying at home.

Question 20

What is the difference between Individual Demand and Market demand ?

Answer 20

Individual - one consumers willingness & ability to purchase a product or service at a given price
Market demand - the sum of all consumers willingness & ability to purchase a product or service at a given set of prices

Question 21

What is competitive demand ?

Answer 21

When products are substitutes for one another

The price of a substitute affects the demand for a good

Question 22

What is composite demand ?

Answer 22

When a product has multiple uses

e.g. computers have multiple uses - streaming videos, home work, music etc etc

Question 23

What causes a movement along the demand curve ?

Answer 23

A change in quantity demanded that results from a change in the price of a product

Question 24

What factors cause a shift in the demand curve

Answer 24

Income - demand for goods can increase depending on if income increases luxury products) or decreases (inferior products)
Price of complementary goods - when a good or service is in joint demand with another good - e.g. cars and petrol - as the price of a complement increases the demand for the original good decreases
Price of substitute goods - when a good or service is in competitive demand with another good - e.g. Samsung vs Sony phone - a price change in one is likely to lead to a shift in demand for the other…as the price of a substitute increases the demand for the original good decreases
Tastes and fashions - if people start to enjoy a good or service more or it becomes fashionable then demand is likely to increase
Advertising and Marketing - aim of Marketing is to increase demand for a good or service
Size of the target market - size of market may affect demand

Question 25

Explain with a diagram what is meant by contraction or expansion of demand ?

Answer 25

CAN YOU DRAW THE CORRECT GRAPH - PAGE 27