Demand

Question 1

What is the law of demand

Answer 1

when the price goes down, Qty demand will go up and vice versa

Question 2

What are the two things we have for demand

Answer 2

1. demand schedule
2. demand curve

Question 3

The demand is curve is ______________sloping

Answer 3

downward sloping

Question 4

Reasons for downward sloping

Answer 4

1. substitution effect
2. income effect
3. law of diminishing marginal utility

Question 5

define substitution effect

Answer 5

if the price goes down, people will want to buy more
- change in price motivates consumers to buy relatively cheaper substitute goods

if juice costs more than milk, they will buy more milk and vice versa

Question 6

Define income effect

Answer 6

change in price affect the purchasing power of consumer’s income

• people buy more milk b/c their purchasing power has increased
• the amount you can buy with your income (each dollar) has increased and vice versa

Question 7

Define the law of diminishing marginal utility

Answer 7

as you continue to consume and give products, you will eventually get less addition utility (satisfaction) from each unit you consume

Question 8

What happens to the demand curve if something other than price changes

Answer 8

it will SHIFT the demand curve

Question 9

If a study comes out saying milk cuases baldness how does this affect the demand curve

Answer 9

it would shift the demand curve LEFT

at every single price, people are going to buy less

Demand decreases when you shift LEFT

Question 10

if a study comes out saying milk makes you smarter how does this affect the demand curve

Answer 10

it would shift the demand curve RIGHT

at every single price, people are going to buy more

Demand increases when you shift RIGHT

Question 11

What are the 5 shifters of demand

Answer 11

1. tastes/preferences
2. # of consumers
3. Price of related goods
4. income
5. expectations

Question 12

Explain Tastes/preferences Ie. study shows kids having milk in the morning do better in school (what happens to the demand curve)

Answer 12

Demand increases
Demand curve shifts right

Question 13

Number of consumers - new customers come into town, what happens to the demand curve

Answer 13

Demand increases
Demand curve shifts right

Question 14

Price of related goods (substitutes and complements)
Almond milk and cow’s milk - substitutes
if the price goes up for almond milk what happens to the demand for cows milk?

Answer 14

demand for cows milk increases, shifts demand curve right

Demand for almond milk decreases, shifts demand curve left

Question 15

Price of related goods (substitutes and complements)
Almond milk and cow’s milk - substitutes
if the price of cereal falls, what happens to the demand for milk

Answer 15

if the price of the compliment falls, demand for milk will increase

Question 16

If the price of substitutes increases what happens to demand

Answer 16

Sub $increases = Demand for other product increases

Question 17

if the price of a compliment falls, what happens to demand on compliment product

Answer 17

complement $ goes down= milk demand goes up

Question 18

Income why is it a little tricky

Answer 18

a little tricky b/c depends on the type of product

Question 19

What are the types of products

Answer 19

1. normal goods
2. inferior goods

Question 20

What is a normal good

Answer 20

add definition

Question 21

what is an inferior good

Answer 21

add defintion

Question 22

When there is an increase in income what happens to the demand for a normal good

Answer 22

if income increases, demand for normal good increases and vice versa

Question 23

When there is an increase in income what happens to the demand for a inferior good

Answer 23

if income increases, the demand for an inferior good will decrease and vice versa

Question 24

Expectations - how do they affect the demand curve

Answer 24

if you think the price of milk will decrease next week, you will buy less today and vice versa

Question 25

What is the difference between changes in QTY demanded vs changes in demand (Shifts)

Answer 25

Movement along the demand curve indicates a change in QTY demanded. As price falls, QTY increases

Shifts along the demand curve indicate a change in demand
- price does not change but people decided to buy more
(b/c of one of the 5 shifters)

Question 26

What happens to demand for a product when the price goes down

Answer 26

demand stays the same, but QTY demanded goes up

Price is a movement along demand curve, it does not shift it
therefore there is no change in demand