Demand

Question 1

What is Individual Demand?

Answer 1

The number of goods one consumer will buy at various prices.

Question 2

What is Market Demand?

Answer 2

The number of goods all consumers will buy at various prices.

Question 3

What is Effective Demand?

Answer 3

Demand for a good that is backed up by the necessary purchasing power.

Question 4

What is Derived Demand?

Answer 4

Demand for a good, which only occurs because it is useful in the manufacture/making of another good.

E.g. timber and furniture, steel and cars, milk and butter.

Question 5

What is Composite Demand?

Answer 5

When a good has a number of different uses, it has a composite demand.

E.g., sugar can be used for baking, as a sweetener in coffee, making of sweets etc., and timber can be used to produce furniture, houses and paper.

Question 6

What is Joint Demand?

Answer 6

When the demand for one good is linked with the demand for another.

E.g. cars and petrol, golf clubs and golf balls, pens and ink.

Question 7

What is the Law of Demand?

Answer 7

‘As the price (P) of a good increases, the quantity demanded (QD) decreases, and vice versa’. There is a negative relationship between P and QD.

Question 8

What are the Factors Affecting Demand?

Answer 8

Dx = f (Px, Pog, Y, Ex, T, U, G)

Px = Price of good x, Pog = Price of other goods, Y = Income, Ex = Expectations (about future prices), T = Tastes (or trends, fashions due to advertising), U = Unplanned factors, G = Govt regulations.

Question 9

What are Complementary Goods?

Answer 9

Goods that are used together, they complement one another – they have a joint demand.

Question 10

What are Substitute Goods?

Answer 10

Goods that satisfy the same need, one can be used in place of the other.

Question 11

What are Normal Goods?

Answer 11

Goods with a positive income effect – any increase in income will lead to an increase in demand for these goods.

Question 12

What are Inferior Goods?

Answer 12

Goods with a negative income effect – any increase in income leads to a decrease in demand for these goods.

Question 13

What are the Exceptions to the Law of Demand?

Answer 13

1. Giffen Goods 2. Snob/Veblen or Exclusive Goods 3. Goods Influenced by Expectation 4. Addictive Goods.

Question 14

What are Giffen Goods?

Answer 14

These are necessity goods of low income families. As the price of these goods fall, the real income of families increases, and they buy more luxury products like meat, chicken.

Question 15

What are Snob/Veblen or Exclusive Goods?

Answer 15

These are goods which attract customers because of their exclusiveness or high price.

Question 16

What are Goods Influenced by Expectation?

Answer 16

These are goods that people try to predict the price in the future.

E.g. shares, houses, property etc.

Question 17

What are Addictive Goods?

Answer 17

As a person becomes more addicted to a particular drug, they are prepared to buy more as the price increases – this is irrational behavior due to addiction.