Demand

Question 1

What is demand?

Answer 1

It is the willingness and ability of consumers to purchase a good or service at a given level of price while other factors remain constant.

Question 2

Describe the law of demand?

Answer 2

Higher the price lower the quantity demanded. Lower the price higher the quantity demanded.

Question 3

whats the demand equation?

Answer 3

QD = a - bp 
QD = Quantity demanded
a = Maximum demand at zero price, (it is at the very bottom of the demand curve)
B = slope of the demand curve
P = Price

Question 4

What are the factors that influence demand?

Answer 4

• Price of the product itself
• Consumer income
• Changes in income tax
• Advertising
• Population
• Prices of substitutes and complements.
• Future price expectations
• Consumer taste and patterns

Question 5

What does a movement along the demand curve indicate?

Answer 5

Changes in the price of a product while other factors remain constant, causes the movement of a point along the demand curve.

Question 6

What does a upward movement along the demand curve indictae?

Answer 6

It indicates an increase in price which causes quantity demanded to fall.

Question 7

What does a shift of the demand curve indicate ?

Answer 7

Changes in other factors that effects demand while the price remains constant causes a shift of the demand curve.

Question 8

What causes a rightward shift of the demand curve?

Answer 8

An increase in demand when the price remains constant. Ex successful advertising for a product.

Question 9

What causes a rightward shift of the demand curve?

Answer 9

An increase in demand when the price remains constant. Ex successful advertising for a product.

Question 10

What causes a leftward shift of the demand curve?

Answer 10

other factors change in a way that demand reduces, while prices remain constant. Ex drop in consumer income, negative advertising.

Question 11

What goods have an upward sloping demand curve or are an exception of the law of demand??

Answer 11

Giffen goods - It is a product that consumers consumer more as the price rises. They are rare forms of inferior goods that have no ready substitute such as bread, potatoes, rice.

Demonstrative goods/ luxury goods - As price rises, demand increases because the display superior wealth. Eg antiques, precious stones

Speculative goods - Goods such as shares. People purchase more of these goods whenever their prices are raising.

Question 12

What are the reasons for the law of demand?

Answer 12

Income effect - When prices fall, people are able to purchase more from their income, thus real income rises.

Substitution effect - When the price of a particular product falls, its price will become relatively more attractive compared to its substitutes. Therefore consumers will switch to that product increasing demand.

Question 13

What is competitive demand?

Answer 13

These are goods which gives a similar satisfaction. Ex Tea and coffee.
Therefore the increase in demand for one good will decrease the demand for another.

Question 14

What is joint demand?

Answer 14

When two goods are bought to complement each other. Ex Tea and sugar, Bread and butter.
Therefore an increase in demand for one good will increase the demand for the other.

Question 15

What is derived demand?

Answer 15

Many goods are demanded only because they are needed for the production of another good. Therefore these goods are said to be in derived demand. Ex; Mobile phones and lithium batteries

Question 16

What is composite demand?

Answer 16

A good is said to be in demand when it is demanded for two more distinct uses. Ex Milk can be used for the production butter, cheese, ice cream, yoghurt. An increase in demand for one composite good will lead to fall in supply for other uses.