4.1.3.1- Demand

Question 1

Define demand

Answer 1

The quantity of a good or service hat consumers are willing and able to buy at any possible price in a given period

Question 2

What is the law of demand

Answer 2

Ceteris paribus, there is an inverse relationship between the quantity demanded and the price of a good or service

Question 3

3 reasons why the demand curve have a downwards slope

Answer 3

• the law of diminishing marginal utility
• the income effect
• the substitution effect

Question 4

What is the law of diminishing marginal utility

Answer 4

The more of a product we consume, the less utility each additional unit consumed provides

Question 5

What is the income effect

Answer 5

If our income is fixed, and the price of a product falls, we can afford more of it. Equally if the price of a product increases, we cannot afford as much therefore demand decreases

Question 6

What is the substitution effect

Answer 6

For goods with substitutes, if price falls the consumers will switch to buying the now relatively cheaper products and vice versa.

Question 7

What is an extension of demand

Answer 7

When there is a movement along the demand curve that results in an increase in the quantity demanded

Question 8

What is a contraction of demand

Answer 8

Movement along the demand curve that results in a decrease in the quantity demanded

Question 9

What 7 factors cause a shift in the demand curve

Answer 9

• population
• income
• related goods
• advertising
• trends
• expectations
• seasons

Question 10

How does population cause a shift in the demand curve

Answer 10

Larger populations demand more, so demand curve shifts out. The age distribution of the population also affects the patterns of demand

Question 11

How does income cause demand shifts

Answer 11

Consumers with a high disposable income will be able to afford more goods, therefore demand increases cause it a shift out.

Question 12

Hoes does related goods cause a shift in demand

Answer 12

Substitute goods replace a product, if the price of a substitute good falls, demand for the original good will also fall because it will be more expensive. A complimentary good compliments other goods, if the complimentary goods price falls, its demand increases, so the original good will increase.

Question 13

How does advertising cause a shift in demand

Answer 13

By increasing advertisement, the demand for products will also increase, causing as shift out.

Question 14

How do trends cause a shift in demand

Answer 14

If something is in/out of fashion, the demand will increase/decrease based on how people preferences change

Question 15

How do expectations cause shifts in demand curves

Answer 15

If speculators expect the price to increase in the future, they may buy more of the certain good, increasing the quantity demanded

Question 16

How do seasons cause shifts in demand curves

Answer 16

Summer items will have lower demand in the winter

Question 17

Define giffen goods

Answer 17

A special inferior good whose demand rises as its price rises

Question 18

Define Veblen goods

Answer 18

Goods that are brought just because they are expensive. Also known as snoop appeal

Question 19

Define speculative goods

Answer 19

Goods that are purchased with the hope that they will become more valuable in the future.

Question 20

Define qualities goods

Answer 20

As the price increases, some consumers believe that this means the quality will also increase, therefore the higher the price, the higher the quantity demanded