Demand

Question 1

What is meant by demand

Answer 1

A quantity of a product or Service that consumers are willing and able to buy at a given price over a period of time

Question 2

What is the relationship between demand for a good and its price

Answer 2

If the price changes then the demand with also change. Decrease in price leads to an increase in demand

Question 3

Other then an price what other factors determine demand for good and services

Answer 3

• Changes in real income
• changes in population
• trends/ tastes
• demand for other good (substitutes or complements)
  -expectations of changes in price and availability
  -Celebration/ seasons ( Christmas)

Question 4

What is a substitute

Answer 4

Two alternative goods that could be used for the same purpose

Question 5

What happens if the price of a substitute falls

Answer 5

The demand for the good falls as the demand for the substitute has increased

Question 6

What is a complements

Answer 6

Goods that are used together (shirt and tie)

Question 7

What happens if the demand for a complement increases

Answer 7

The demand for the good also increases

Question 8

How is revenue calculated

Answer 8

Price pre unit x quantity sold = total revenue

Question 9

What is utility

Answer 9

It’s a measure of the satisfaction that we get from purchasing and consuming a good or service

Question 10

What is total utility

Answer 10

The total satisfaction from a given level of consumption

Question 11

What is marginal utility

Answer 11

The change in satisfaction from consuming an extra unit

Question 12

How is marginal utility measured

Answer 12

Difference in total utilities/ change in quantity consume

Question 13

What is the law of diminishing marginal utility

Answer 13

Utility isn’t constant. Often we get diminishing marginal utility. AS QUANTITY CONSUMED INCREASES THE MARGINAL UTILITY DERIVED FROM EACH EXTRA UNIT DECREASES e.g. the first cookie is more enjoyable than the next which is more enjoyable then the next etc.

Question 14

Why would marginal utility become negative

Answer 14

Because consuming one extra unit is now causing dissatisfaction.

Question 15

Where is total utility maximised

Answer 15

When marginal utility is equal to 0 (the highest part of the graph before it starts to decrease)

Question 16

How will a rational consumer maximise utility when there is a price involved

Answer 16

They with consumes up until marginal utility is equal to the price (£2 for a coffee consuming until the marginal utility is less then £2)

Question 17

What is supply

Answer 17

The quantity of a good or service that a producer is willing to supply onto the market at a given price in a given time period

Question 18

What is the basic law of supply

Answer 18

As the market price of a commodity rises the producers expand their supply to the market

Question 19

What does a supply curve show

Answer 19

A relationship between price and quantity that a firm is willing and able to sell

Question 20

Why do supply curves slope upward

Answer 20

-rising prices acts as a incentive for firms to expand supply and achieve higher profits
- increased outputs leads to increased cost so the price also increases

Question 21

What factors cause a shift in supply

Answer 21

• changes in production costs
• taxes and subsidies
  -climatic conditions
  -changes in production technologies
  -changes in the number of producers on the market
• changes in the price of substitutes in production

Question 22

Which way does the supply curve shift when there is an increase in supply

Answer 22

Shifts to the right

Question 23

Which way does the supply curve shift when there is a decrease in supply

Answer 23

Shifts to the left

Question 24

What is equilibrium price

Answer 24

When buyers and sellers come together in a market place and a price is struck

Question 25

What is equilibrium price also known as

Answer 25

Market clearing price as at that price there is nothing left in the market as demand is equal to supply

Question 26

What did Adam smith refer to the movement of the equilibrium price as

Answer 26

The invisible hand

Question 27

What are complements/ joint demand

Answer 27

Goods that ‘go together’
They are jointly demanded
As the demand for one increases the demand for the other also increases

Question 28

What are substitutes/ competing goods

Answer 28

When an economic agent has the choice of an alternative good or service, then competition in the market exits and the substitute relationship exists
E.g cars and buses

Question 29

What is derived demand and what does this means if there is a fall in demand for one of the goods/services

Answer 29

This is a relationship one is demanded only for the production of the other ( grooming dogs and dog groomers)
If there is a fall in demand for one there is a fall in demand for the other

Question 30

What is composite demand

Answer 30

This is when one good is demanded for two or more distinct uses ( milk is used for milkshakes and for butter)

Question 31

In a composite demand relationship what happens if there is an increase in demand for one good

Answer 31

Then the supply for the other good falls

Question 32

What is joint supply

Answer 32

This is when one good has at leats two different purposes ( cow is used for meat and leather)

Question 33

What happens if there is an increase in demand for one of the purposes in a joint supply relationship

Answer 33

There will be an increase in supply for the other purpose