3.1 - The determinants of demand

Question 1

Define market

Answer 1

voluntary meeting of buyers and sellers with exchange taking place

Question 2

What is demand?

Answer 2

quantity of a good or service that consumers are willing and able to buy at given prices in a given time period

Question 3

what is supply?

Answer 3

the quantity of good or service that producers are willing and able to sell at given prices in a given time period

Question 4

What are competitive markets?

Answer 4

markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market

Question 5

what is the ruling market price also known as

Answer 5

market equilibrium

Question 6

what is the market equilibrium?

Answer 6

the price at which demand equals supply

Question 7

What is effective demand?

Answer 7

the desire for a good or service backed by the ability to pay

Question 8

What is market demand?

Answer 8

the quantity of a good or service that all the consumers in a market are willing to and able to but at different market prices

Question 9

what is individual demand?

Answer 9

the quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices

Question 10

What causes the demand curve to shift?

Answer 10

a change in the condition of demand

Question 11

What is ceteris paribus?

Answer 11

all other things held equal (assumption)

Question 12

What causes a movement along the demand curve?

Answer 12

change in price

Question 13

What is a condition of demand (define)?

Answer 13

a determinant of demand, other than the good’s own price, that fixes the position of the demand curve

Question 14

What are the conditions of demand?

Answer 14

• the prices of substitute goods
• the prices of complementary goods
• personal income
• tastes and preferences
• population size (influences total market size)

Question 15

What are substitute goods?

Answer 15

alternative goods that could be used for the same purpose

Question 16

what are complementary goods?

Answer 16

when two goods are compliments, they experience joint demand

Question 17

which way is an increase in demand?

Answer 17

right

Question 18

which way is decrease demand?

Answer 18

left

Question 19

What causes a rightward shift of the demand curve?

Answer 19

• increase in price of sub in COMPETING demand
• fall in price of COMPLEMENT good

Question 20

What is a normal good?

Answer 20

demand increases as income increases

Question 21

What is an inferior good?

Answer 21

demand decreases as income rises

Question 22

What type of relationship is inferior?

Answer 22

inverse

Question 23

How will an increase in income affect the normal demand curve?

Answer 23

increased income shifts demand curve to right

Question 24

How will an increase in income affect the inferior demand curve?

Answer 24

increased income shifts left

Question 25

What are the upwards sloping demand curves?

Answer 25

- speculative demand - goods for which consumers use prices as an indicator for quality - Veblen goods

Question 26

Why does speculative demand have an upwards sloping demand curve?

Answer 26

if price of foreign currency rises, people speculate which causes the price to rise even further (as they buy the currency), this causes demand to increase with the price increase

Question 27

Why do Veblen goods have an upwards sloping demand curve?

Answer 27

Veblen goods = snob goods veblen goods are used so signal wealth to others so consumers will pay more money for them