Chapter 4- Demand

Question 1

Complementary goods

Answer 1

goods that are purchased together because they are consumed together.

Question 2

Demand

Answer 2

The quantity of a product bought at a given price over a given period of time. This is linked to the need (water, food, shelter, clothing) and a want.

A want is any other good or service which consumers desire.

Question 3

Demand definition

Answer 3

The amount of product that consumers are willing and able to purchase at any given price

Question 4

Demand Curve

Answer 4

• a line drawn on a graph that shows how much of a good will be
  bought at different prices.

-Demand curves generally slope downwards from left to right as
quantity demanded is likely to be higher at lower prices and lower at
higher prices

Question 5

Inferior goods

Answer 5

Goods for which demand will fall if income rises or rise if income falls.

Question 6

Normal goods

Answer 6

Goods for which demand will rise if income rises or fall if income falls.

Question 7

Substitute goods

Answer 7

Goods that can be bought as an alternative to others, but perform the same function.

Question 8

Factors leading to a change in demand:

Answer 8

• Prices of substitutes
• Prices of complements
• Changes in consumer incomes
• Changes in fashion and tastes
• Advertising and branding
• Demographics

Question 9

Prices of substitutes

Answer 9

if the price of substitutes falls, then demand for that substitute will rise, meaning demand for the product will fall. If a good has many substitutes then demand for the product will be affected significantly.

For example, consumers buying the coca cola brand may have considered brands such as Pepsi and the price of this substitute may affect their purchase decision

Question 10

Prices of complements

Answer 10

goods and services consumers want together, or which are jointly demanded are called complementary goods or complements.

E.g. reduction in cost of skiing equipment may encourage more people to try skiing.

Question 11

Changes in consumer incomes

Answer 11

Rise in income = increase in demand, Fall in income = decrease in demand – e.g. higher income may suggest more restaurant meals etc.

Question 12

Changes in fashion and tastes

Answer 12

Changes in fashion means a change in demand e.g. 1970’s flared jeans + platform shoes, late 70’s straight jeans and flat shoes.

Question 13

Advertising and branding

Answer 13

Good and heavy advertising + demand = demand likely to increase. Also building a brand can help them distinguish the brand from other, creating brand recognition and demand.

This helps explain the huge amounts of money that some businesses are prepared to spend on advertising

For example, Sky spent more than any other country in 2013, 264 million in expenditure

Businesses also use brand to influence demand, by giving products name, term, symbol or any other design to distinguish them from those competitors, businesses can develop brand recognition and increase sales.

Question 14

Demographics

Answer 14

As population grows there will be an increase demand for goods and services. However, this will be affected by population structure. E.g. age distribution, gender, geographical, ethnic groups.

Question 15

External shocks

Answer 15

Factors beyond the control of business