Demand

Question 1

What is the definition of demand?

Answer 1

Consumers must be both willing and able to buy, not just that they want it but they can also afford it at that time

Question 2

What is individual demand?

Answer 2

Individual demand is the demand for a product by a consumer / individual

Question 3

What does the law of demand state:

Answer 3

The law of demand states that there is an inverse relationship between quantity demanded and the price of a good or service

(as price goes up, demand goes down)

Question 4

What does the law of demand state:

Answer 4

The law of demand states that there is an inverse relationship between quantity demanded and the price of a good or service

(as price goes up, demand goes down)

Question 5

What is market demand?

Answer 5

Market demand is the demand of a product by all consumers / individuals in a market

Question 6

What is the extension of demand?

Answer 6

The increase in quantity demanded (due to a fall in price)

Question 7

What is a contraction in demand?

Answer 7

The fall in quantity demanded due to a rise in price

Question 8

What are the non-price factors of demand? (hint: PASIFIC)

Answer 8

P opulation
A dvertising 
S ubstitutes
I ncome
F ashion and trends
I nterest rates / government policies
C ompliment

Question 9

What is an inferior good?

Answer 9

Goods for which the demand falls when income rises E.G if I am buying canned soup (inferior good), but when income rises I might start buying Italian soup

Question 10

State the definition of normal good:

Answer 10

Normal goods for which the demand falls when income falls. Demand for the good rises

Question 11

What are substitute goods and state an example

Answer 11

Substitute goods are good that can be used instead of each other, such as coke or Pepsi

Question 12

Draw a demand curve, labelled:

Answer 12

e

Question 13

How does Income affect demand?

Answer 13

If income rises then consumers are able to buy more goods and services at every price. If income becomes more unevenly distributed, then there will be an increase in demand for luxury good and services as the rich become wealthier. If poverty increases then the demand for a basic and cheap product is likely to rise

Question 14

How do Tastes and fashion affect demand?

Answer 14

Over time, consumers’ tastes change and so too does fashion. People prefer to buy different or more advanced products, so demand for these products increases. For example consumers now prefer 4G smartphones to 3G phones. The result will be an increase in 4G phones and a decrease in demand for 3G phones. The fashion industry is built on persuading people to throw out last year’s clothes and buy new designs

Question 15

How do substitutes affect demand?

Answer 15

Substitutes are goods and services that can be used in place of another good and service. If the price of one product rises then people will change to buying the other one. These can be tea of coffee, Coke and Pepsi or Barclays and HSBC banks.

Question 16

How do complements affect goods?

Answer 16

Complements are good and services that go together, such as cars and fuel, keyboard and desktop computers, or cups and saucers. If the demand for one goes up, due perhaps to a fall in price, so too does the demand for the other

Question 17

What are the 3 aspects of population that will affect demand and explain them:

Answer 17

Size, gender and age

If the number of people in a country increases or decreases, it is likely that the demand for most foods and services will also increase or decrease. For example, an increase in population will put more demand on health services

Change in the age of the population is also important. If a population ages si that there are more older people, it is likely that there will be an increase in demand for the type of goods they want or need. Older people may prefer cars to motorbikes or going on river cruises rather that activity holidays

If there is an increase in the number of women in a country, or in the number of women working and thus having more purchasing power, there is likely to be and increase in demand for goods women favour. This would be equally true if there were an increase in the number of men

Question 18

How can the government affect demand?

Answer 18

The government can affect the demand for a product by imposing taxes, which take money our of firm’s and individuals’ pockets, which goes to the government, such as VAT or income tax, or subsidies that put money into firms and individuals thorough, for example, benefits.

By increase VAT on a product, such as cigarettes and alcohol,, the government aims to reduce demand. By giving a subsidy, the government hopes to increase demand, such as money for electric cars.

Question 19

Draw a demand graph: how will an increase in price of cars affect the demand petrol?

Answer 19

It will cause an inward shift to the left (complimentary goods)

Question 20

Draw a demand graph: How will an increase in population affect the demand for petrol?

Answer 20

It will case an outward shift to the right

Question 21

Draw a demand graph: How will the rise in the transport costs of shipping oil affect the demand forpetrol?

Answer 21

Causes a contraction in demand to the left.

Question 22

Draw a demand graph: How does a growing concern for environmental issues by the general public effect the demand for petrol?

Answer 22

It will cause an inward shift to the left, causing a decrease in demand

Question 23

Draw a demand graph: How does the duty tax of petrol affect the demand for petrol?

Answer 23

It will cause a contraction in demand to the left

Question 24

Draw a demand graph: How would a reduction in tax of petrol affect the demand for petrol?

Answer 24

An outward shift in demand to the right

Question 25

How do you measure the Price Elasticity of demand?

Answer 25

% change in quantity demanded / % change in price

Question 26

What is the definition of elastic demand?

Answer 26

Elastic demand is when the percentage change in quantity demanded is greater that the percentage change in price (a decrease in price from p1 to p2 leads to a larger increase in quantity from q1 to q2, showing that quantity demanded is responsive to a change in price.

Question 27

What is Elastic demand in terms of PED?

Answer 27

Elastic demand is any number that is above but no including 1

Question 28

What is the equation for percentage change?

Answer 28

New - Old / Old x 100