Demand

Question 1

What is demand?

Answer 1

the willingness and ability of a consumer to buy goods and services at a specific price

Question 2

Explanation 3 reasons the demand curve is downward sloping

Answer 2

• The law of diminishing marginal utility
• The income effect
• The substitution effect

Question 3

What could cause an extension in demand?

Answer 3

a decrease in price leads to an expansion along the demand curve, increasing the quantity demanded

Question 4

What could cause a contraction in demand?

Answer 4

an increase in price leads to a contraction along the demand curve, reducing the quantity demanded

Question 5

What are the conditions of demand?

Answer 5

the law of demand states that the higher the price, the lower the quantity demanded; and the lower the price, the higher the quantity demanded

Question 6

What is the law of diminishing marginal utility?

Answer 6

the law of diminishing marginal utility states that the added benefit of consuming more of a product or service declines as its consumption increases

Question 7

Why do governments need to know the various elasticities of demand for various products?

Answer 7

The price elasticity of demand tells you how sensitive consumers are to a change in the price of a good. Therefore the more sensitive (elastic) the demand is, the more the tax will effect the demand