Demand

Question 1

Market

Answer 1

A place where buyers and sellers come together to carry out an economic transaction. Can be physical or online

Question 2

Marginal utility

Answer 2

Extra satisfaction

Question 3

As we increase the purchase of a good, what happens to the marginal utility?

Answer 3

It decreases so we are willing to pay a lower price

Question 4

Principle of Diminishing Marginal Utility

Answer 4

Consumer is willing to pay a high price for the first good, with successively lower prices for the second and third good.

Question 5

Demand

Answer 5

The quantity of goods or services that a consumer is willing and able to purchase at different prices

Question 6

Law of demand

Answer 6

As prices decreases, the quantity demanded will rise.

Question 7

Why does a demand curve slope downwards?

Answer 7

Income effect, substitution effect and law of diminishing marginal utility

Question 8

What are the 5 determinants of demand?

Answer 8

Income (normal and inferior goods)
Number of consumers

Future price expectations
Preferences and tastes
Substitutes

Question 9

What is normal goods and inferior goods?

Answer 9

Normal goods are goods that as income increases, demand increases slightly. Inferior goods are goods that as income increases, demand decreases

Question 10

What are substitutes and complements?

Answer 10

Substitutes are goods that can be swapped to replace each other - ie if price of coke increases, demand for pepsi also increases. Complements are goods that go well with each other - if the price of petrol increases, the demand for cars will decreases.

Question 11

Tastes and preferences

Answer 11

Desires towards purchasing a good or not due to fashion etc

Question 12

Future price expectations

Answer 12

If consumers believe the price will drop tomorrow, the demand today will decrease.

Question 13

When will the demand curve shift

Answer 13

When a determinant of demand changes - to the right is a increase in demand, to the left is a decrease in demand

Question 14

A change in the quantity demanded in a demand curve is shown by what?

Answer 14

A movement along the curve

Question 15

What is the demand curve affected by?

Answer 15

Determinants of demand

Question 16

How does number of consumers impact demand?

Answer 16

The number of consumers in a market will either increase or decrease the demand for goods and services.

Question 17

How can the market demand for a good or service be obtained?

Answer 17

By summing up the individual demands of each consumer

Question 18

What are the key assumptions behind demand theory?

Answer 18

Consumers behave rationally, act in their own self interest and have access to all information

Question 19

Why are the key assumptions behind demand theory not realistic?

Answer 19

Consumers don’t act rationally, don’t have full or reliable information and act thinking about other people

Question 20

What are the two systems that humans have?

Answer 20

System 1 - fast, subconscious automatic decisions and System 2 - slow thinking, thought on and reflected

Question 21

What system does modern and neoclassical economics think consumers act on?

Answer 21

Neoclassical think slow system 2, modern think fast system 1

Question 22

What are the 7 cognitive biases?

Answer 22

Framing bias, social conformity, status quo, loss aversion bias, hyperbolic discounting, availability bias anchoring bias

Question 23

What is availability bias?

Answer 23

The availability of recent information influences decision making - rely on recent examples to make decisions

Question 24

What is anchoring bias?

Answer 24

Briscoes uses this - uses price as a reference point so sales look a lot better

Question 25

Framing bias

Answer 25

Advertising of how a product is framed, for example, 90% fat free not 10% fat

Question 26

Social conformity

Answer 26

Consumers tend to want to fit in so fashion influences decisions

Question 27

Status quo

Answer 27

What consumers stay with current brand as large range of options is too challenging

Question 28

Loss aversion bias

Answer 28

FOMO - consumers don’t want to feel like they have lost out on anything

Question 29

Hyperbolic discounting

Answer 29

Consumers like instant gratification rather than larger later rewards

Question 30

Choice architecture

Answer 30

The theory that the decisions we make are heavily influenced by the way choices are presented to us

Question 31

Nudge theory

Answer 31

The idea that consumers keep their consumer sovereignty (right to choose) but are encouraged (nudged) to make better decisions