Chapter 3 - Demand

Question 1

Demand

Answer 1

Demand is the quantity of a good or service that customers are willing and able to buy at a given price at a given period of time, ceteris paribus

Question 2

Law of demand

Answer 2

The law of demand states that an increase in price will lead to a fall in the quantity demanded of a product, vice versa

Question 3

Income effect

Answer 3

As price of product falls, consumer’s real incomes increase so they are able to buy more goods and services at a lower price

Question 4

Substitution effect

Answer 4

If a price of product falls, more people can buy the product, so consumers will choose cheaper products over rival products. This causes consumers to replace higher priced products with lower priced ones.

Question 5

Market

Answer 5

A market is any place where transactions take place between buyers and sellers

Question 6

Non-price determinants of demand

Answer 6

Related products (substitutes and complements), Income, Preferences and tastes, Expectations of future prices, Number of consumers. (Use acronym RIPEN)

Question 7

Normal Goods

Answer 7

Products that customers tend to buy more of as their income level increases

Question 8

Inferior goods

Answer 8

Products whose demand falls when consumer’s real income rises

Question 9

Complementary goods

Answer 9

Goods that are jointly demanded (example: printer and paper)

Question 10

Substitutes

Answer 10

Products that are in competitive demand because they can be used in place of each other (Example: tea and coffee)