demand (2.2)

Question 1

what is demand

Answer 1

the willingness and ability to purchase a good or service at a given price in a given time period

Question 2

what is derived demand

Answer 2

a demand for a commodity, service, etc. which is a consequence of the demand for something else.

Question 3

what is the law of demand

Answer 3

for most products the quantity demanded varies inversely with its price eg. as price falls demand rises

Question 4

what is market demand

Answer 4

the total demand for a good or service, found by adding all the individual demands together

Question 5

what is movement along the demand curve

Answer 5

when the price changes, leading to a movement UP or DOWN the existing demand curve

Question 6

what is a shift of the demand curve

Answer 6

a complete movement of the existing demand curve either outward(RIGHT) or inward(LEFT)

Question 7

what usually causes right and left shift in demand curve

Answer 7

RIGHT-increase in demand

LEFT-decrease in demand

Question 8

what are the factors that effect the demand curve (shifting)

Answer 8

• income: higher income= increased demand
• marketing: more marketing= increased demand
• tastes and fashion
• substitutes and compliments
• population: increased population=increased demand. If population of elderly increase then demand for their products will increase and the same goes for all ages.
• government policies: taxes and subsidies
• economic situation
• price expectation: if consumers expect prices to rise ,demand will increase more now

Question 9

what is substitutes and how they effect the demand curve

Answer 9

are goods that can be used in place of a similar good or service- if demand goes up for one the demand for the other will fall

Question 10

what are compliments

Answer 10

products that go together eg. cars and fuel- if demand goes up for one the other will also rise

Question 11

what is a subsidy

Answer 11

an amount of money the government gives directly to firms to encourage production and consumption

Question 12

contraction and expansion

Answer 12

• if price falls from p to p1 then demand will rise form q to q1 and this is expansion
• if price rises from p to p2 demand will fall from q to q2 and this is contraction

Question 13

what is elastic demand

Answer 13

when the percentage change in quantity demanded is greater than the percentage change in price

Question 14

what is inelastic demand

Answer 14

when the percentage change in quantity demanded is less than the percentage change in price

Question 15

what is price elasticity of demand (PED)

Answer 15

the responsiveness of quantity demanded to a change in the price of the product

Question 16

PED values -price elastics

Answer 16

if the value of PED is more than -1 eg. -2 then it is price elastic

Question 17

PED values-price inelastic

Answer 17

if the PED value is less than -1 eg. 0 then it is price inelastic

Question 18

the three PED values

Answer 18

• PED =0 /this is perfectly price inelastic
• PED =infinity /this is perfectly price elastic
• PED=-1 /this is called unitary price elastics

Question 19

diagram-perfectly inelastic

Answer 19

straight vertical line

Question 20

diagram- perfectly elastic

Answer 20

straight horizontal line

Question 21

formula for total revenue

Answer 21

tr= price x quantity

Question 22

PED formula

Answer 22

PED = %change in quantity / %change in price