Demand

Question 1

What is the law of demand?

Answer 1

When the price of a product increases, quantity demanded of that product decreases

Question 2

What is intuition/income effect in relation to impacting demand?

Answer 2

The income effect

• E.g if the price of makeup increases the £10 you once had to spend is now less valuable
• REAL value has decreased as does your demand

Question 3

What is the substitution effect?

Answer 3

If the price of makeup doubles, you look for alternatives/substitutes
-quality demanded of original product decreases when substitute increases

Question 4

What does a change in price do to the demand curve?

Answer 4

• Movement along the curve

Question 5

What is a normal good?

Answer 5

• Products you buy when you have more disposable income

- Income rises so does the demand for the product

Question 6

Whats an inferior good?

Answer 6

• Products u buy when on a low income

- Demand reduces as income rises

Question 7

What are the reasons for demand shift?

Answer 7

1) Tastes
2) Number and price of subs
3) Number and price of complementary products
4) Income - some products see rise in demand others see a fall
5) Distribution of income e.g if taxes rise or fall

Question 8

Which way does the demand curve shift if there is an increase in demand?

Answer 8

• Demand curve shifts to the right

Question 9

Which way does the demand curve shift if there is a fall in in demand?

Answer 9

• Demand curve shifts to the left

Question 10

What is meant by utility?

Answer 10

The benefits you get from consumption

Question 11

What is the principle of marginal utility?

Answer 11

More of a product a person consumes, the additional units will provide less satisfaction then the previous ones e.g second cup of tea isn’t as satisfactory as the first

Question 12

What will happen to marginal utility as we consume more of the product over a given period?

Answer 12

• It will fall