Chapter 3: Demand

Question 1

Define demand

Answer 1

The quantity of a good or service that consumers are willing and able to buy given its price, the price of other goods, and consumers’ incomes and preferences

Question 2

Name 4 influences on demand

Answer 2

1. The price of the good
2. Your income
3. The price of other goods
4. Your preferences

Question 3

What can market demand be seen as?

Answer 3

The total quantity of a good or service that all potential buyers are willing and able to buy at any given price in a given period of time

Question 4

Define joint demand

Answer 4

Demand for goods that are interdependent such that they are demanded together

Question 5

Define composite demand

Answer 5

Demand for a good that has multiple uses

Question 6

Define competitive demand

Answer 6

Demand for goods that are in competition with each other

Question 7

Give an example of joint demand

Answer 7

Printers and ink cartridges

Question 8

Give an example of composite demand

Answer 8

Water

Question 9

Complements relate to…

Answer 9

Joint demand

Question 10

Substitutes relate to…

Answer 10

Competitive demand

Question 11

Define ceteris paribus

Answer 11

A Latin phrase meaning ‘all other things being equal’ - it is used in economics when we focus on changes in one variable while holding other influences constant

Question 12

Define law of demand

Answer 12

A law that states there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus

Question 13

Define demand curve

Answer 13

A graph showing how much of a good will be demanded by consumers at any given price

Question 14

Explain the substitution effect

Answer 14

If the price goes up, consumers may find other goods more attractive and choose to buy something else

Question 15

Draw 2 diagrams…

1. A shift in the demand curve
2. A movement along the demand curve

Answer 15

Figure 3.2

Question 16

What causes a movement along the demand curve?

Answer 16

A change in price

Question 17

What shifts the demand curve

Answer 17

Any non-price factors

Question 18

Explain snob effects

Answer 18

Some people may value certain goods more highly simply because their price is high, especially if they know that other people will observe them consuming these goods

Question 19

Define normal good

Answer 19

One where the quantity demanded an increase in response to an increase in consumer incomes

Question 20

Define inferior good

Answer 20

One where the quantity demanded decreases in response to an increase in consumer incomes

Question 21

Give an example of a normal good

Answer 21

Foreign holidays

Question 22

Give an example of an inferior good

Answer 22

Bus journeys

Question 23

Define substitutes

Answer 23

Two goods are said to be substitutes if consumers regard them as alternatives so that the demand for one good is likely to rise if the price of the other good rises

Question 24

Define complements

Answer 24

Two goods consumed jointly, so that an increase in the price of one good causes demand for the other good to fall

Question 25

Define consumer surplus

Answer 25

The value that consumers gain from consuming a good or service over and above the price paid

Question 26

Draw a diagram illustrating consumer surplus

Answer 26

Figure 3.8

Question 27

What does the demand curve show?

Answer 27

The valuation that consumers place on a good reflecting the satisfaction they gain from consuming it