Demand 1.2.1

Question 1

Define demand.

Answer 1

The amount of a good or service that consumers are willing to buy.

Question 2

Define shortage.

Answer 2

When demand for a good or service is greater than the supply.

Question 3

Define surplus.

Answer 3

When the demand for a good or service is less than the available supply.

Question 4

Define commodity.

Answer 4

Raw materials e.g. coal, oil, sugar.

Question 5

What factors affect demand?

Answer 5

Price changes.
Income levels.
Customer tastes and preferences.
Competition.
Fashion and technology.

Question 6

What is the simple demand curve?

Answer 6

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

Question 7

How is the demand graph represented?

Answer 7

Price is shown on the Y axis. Quantity demanded is shown on the X axis. The line drawn is called the demand curve and each point on the demand curve represents the amount of goods or services a customer is willing to buy at a price.

Question 8

A higher price leads to a reduction of…

Answer 8

Quantity demanded.

Question 9

What is the income effect?

Answer 9

A fall in price increases the purchasing power of customers. This allows customers to buy more with a given budget. For normal goods, demand rises with an increase in incomes.

Question 10

What is the substitution effect?

Answer 10

The decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.

Question 11

How does the change in price of a Substitute Good effect Demand?

Answer 11

If the price for the substitute product increases, demand for the original product increases.

If the price for the substitute product decreases, demand for the original product decreases

Question 12

How does the change in price of a complementary good effect Demand?

Answer 12

If the price of the complementary product decreases, demand for the original product increases.

If the price of the complementary product increases, demand for the original product decreases.

Question 13

How does a change in consumer incomes effect Demand?

Answer 13

If consumer incomes rise, demand for most goods and services rises. Substitute goods however may decrease.

If consume income decreases, demand for most goods and services decreases. Substitute goods however may increase.

Question 14

How does a change in fashion tastes and preferences effect Demand?

Answer 14

If the preference for one thing increases, demand will.

If the preference for one thing decreases, demand will.

Question 15

How does advertising and branding effect Demand?

Answer 15

Advertising can increase demand by making consumers want to buy more of something.

Branding and a strong brand increases the levels of demand.

Question 16

How does Demographics effect Demand?

Answer 16

As population increases or decreases demand for most products and services follows suit. The make up of this also effects demand e.g if there are lots of new born babies demand for nurseries increases.

Question 17

How does external shocks effect Demand?

Answer 17

In most cases this decreases demand for example in extreme cases terror attacks have made people less willing to fly however on the flip side of this a report claiming chocolate to be healthy would increase the demand massively.

Question 18

Effect of seasonality on demand?

Answer 18

The time of year can impact demand e.g think of the demand for shorts in summer compared to winter.