3.2: Demand

Question 1

3 criteria for if you demand something:

Answer 1

1) Want it.
2) Can afford it.
3) Plan to buy it.

Question 2

What are wants?

Answer 2

Wants are the unlimited desires or wishes that people have for goods and services.

Question 3

Is quantity demanded the same as the quantity actually bought?

Answer 3

No

Sometimes the quantity demanded exceeds the amount of goods available, so the quantity bought is less than the quantity demanded.

Question 4

How is quantity demanded measured?

Answer 4

The quantity demanded is measured as an amount per unit of time.

For example, suppose that you buy one cup of coffee a day. The quantity of coffee you demand can be expressed as 1 cup per day, 7 cups per week, or 365 cups per year.

Question 5

Law of demand states…

Answer 5

Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded

The lower the price of a good, the greater is the quantity demanded.

Question 6

Explain the substitution effect

Answer 6

When the price of a good rises, other things remaining the same, its relative price—its opportunity cost—rises. Although each good is unique, it has substitutes—other goods that can be used in its place. As the opportunity cost of a good rises, the incentive to economize on its use and switch to a substitute becomes stronger.

Question 7

What is income effect?

Answer 7

When a price rises, other things remaining the same, the price rises relative to income. Faced with a higher price and an unchanged income, people cannot afford to buy all the things they previously bought. They must decrease the quantities demanded of at least some goods and services.

Question 8

What relationship does demand show?

Answer 8

Between price of good and the quantity demanded

Question 9

Demand is illustrated by…

Answer 9

Demand curve and demand schedule

Question 10

What does quantity demanded refer to?

Answer 10

Refers to a point on a demand curve—the quantity demanded at a particular price.

Question 11

What relationship does a demand curve show:

Answer 11

The relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same.

Question 12

What does a demand schedule list?

Answer 12

demand schedule lists the quantities demanded at each price when all the other influences on consumers’ planned purchases remain the same. (chart)

Question 13

What’s another way to look at the demand curve?

Answer 13

The willingness and ability to pay is a measure of marginal benefit.

Question 14

Talk about how willingness to pay works in relation to marginal benefit

Answer 14

If a small quantity is available, the highest price that someone is willing and able to pay for one more unit is high. But as the quantity available increases, the marginal benefit of each additional unit falls and the highest price that someone is willing and able to pay also falls along the demand curve.

Question 15

When is there a change in the demand curve?

Answer 15

When any factor that influences buying plans changes, other than the price of the good, there is a change in demand

Question 16

What are six main factors that bring change in demand?

Answer 16

1) The prices of related goods
2) Expected future prices
3) Income
4) Expected future income and credit
5) Population
6) Preferences

Question 17

What is a substitute good?

Answer 17

The quantity of energy bars that consumers plan to buy depends in part on the prices of substitutes for energy bars. A substitute is a good that can be used in place of another good.

Question 18

What is a complement good?

Answer 18

The quantity of energy bars that people plan to buy also depends on the prices of complements with energy bars. A complement is a good that is used in conjunction with another good.

Question 19

Explain how expected future prices affect the demand curve

Answer 19

If the expected future price of a good rises and if the good can be stored, the opportunity cost of obtaining the good for future use is lower today than it will be in the future when people expect the price to be higher.

So people retime their purchases—they substitute over time. They buy more of the good now before its price is expected to rise (and less afterward), so the demand for the good today increases.

Question 20

How does income affect demand?

Answer 20

Consumers’ income influences demand. When income increases, consumers buy more of most goods; when income decreases, consumers buy less of most goods. Although an increase in income leads to an increase in the demand for most goods, it does not lead to an increase in the demand for all goods.

Question 21

What’s a normal good?

Answer 21

A normal good is one for which demand increases as income increases.

Question 22

What’s an inferior good?

Answer 22

An inferior good is one for which demand decreases as income increases.

Question 23

How does expected future income and credit affect demand?

Answer 23

When expected future income increases or credit becomes easier to get, demand for a good might increase now. For example, a salesperson gets the news that she will receive a big bonus at the end of the year, so she goes into debt and buys a new car right now, rather than waiting until she receives the bonus.

Question 24

How does population affect demand?

Answer 24

Demand also depends on the size and the age structure of the population. The larger the population, the greater is the demand for all goods and services; the smaller the population, the smaller is the demand for all goods and services.

Question 25

How do preferences affect demand?

Answer 25

Demand depends on preferences. Preferences determine the value that people place on each good and service. Preferences depend on such things as the weather, information, and fashion.

Question 26

What does a movement along the demand curve show?

Answer 26

A point on the demand curve shows the quantity demanded at a given price, so a movement along the demand curve shows a change in the quantity demanded.

If the price of the good changes but no other influence on buying plans changes, we illustrate the effect as a movement along the demand curve.

Question 27

What does a shift in the demand curve show?

Answer 27

The entire demand curve shows demand, so a shift of the demand curve shows a change in demand.

If the price of a good remains constant but some other influence on buying plans changes, there is a change in demand for that good. We illustrate a change in demand as a shift of the demand curve.