Demand

Question 1

what is demand?

Answer 1

the number of units of goods a consumer will buy at various prices.

Question 2

the law of demand

Answer 2

states that an increase in price leads to a decrease in quantity demanded or an decrease in price leads to an increase in quantity demanded.

Question 3

what is a consumer surplus?

Answer 3

the benefit to consumers due to the difference between what consumers actually pay to consume a good and what they would have been willing to pay rather than go without the good.

Question 4

what is an individual demand

Answer 4

the quantities of a good that an individual consumer is prepared to buy at each price

Question 5

what is a market demand/ aggregate demand?

Answer 5

shows the different quantities of a good that all consumers in the market are prepared to buy at each price.

it is derived by adding together all the individual quantities demanded for a good.

Question 6

what is a demand schedule?

Answer 6

a table that shows the different quantities demanded for a good at various market prices at any given time.

Question 7

what is an individual demand schedule?

Answer 7

lists the different quantities of a good that an individual consumer is prepared to buy at each price.

Question 8

what is a market/aggregate demand schedule?

Answer 8

lists the different quantities of a good that all consumers in the market are prepared to buy at each price.

it is derived by adding together all the individual demand schedules for the good.

Question 9

what is a demand curve?

Answer 9

a graph illustrating the demand for a good at various prices at any given time

Question 10

what is effective demand?

Answer 10

consumers must be willing to buy and be capable of paying the price set by the supplier. It is demand backed by the necessary purchasing power (i.e. money)

Question 11

what is derived demand?

Answer 11

When one commodity is an essential part of another commodity and it is demanded not for its own sake but because it is required to manufacture another good.

(e.g. timber and furniture, steel and cars)

Question 12

what is compose demand?

Answer 12

when a commodity is required for a number of different uses

e.g. sugar

Question 13

what is joint demand?

Answer 13

when the demand for one commodity is joined with the demand for another. (complementary goods)

e.g. cars and petrol, golf clubs and golf balls,…

Question 14

why does the demand curve slope downwards from left to right.

Answer 14

there is a negative (inverse) relationship between price and quantity demanded.

Question 15

a shift in the demand curve

Answer 15

caused by a change in any non-price determinant of demand

Question 16

movement along the demand curve

Answer 16

caused by a change in the price of the good itself

Question 17

factors affection the demand of a good

Answer 17

the price of the good itself,
the price of other goods,
income of consumers,
consumers´ expectations,
tastes or preferences,
unplanned factors,
government regulations

Question 18

the demand function

Answer 18

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

Question 19

what are complementary goods

Answer 19

goods that are used jointly. The use of one involves the use of the other.

e.g. bread and butter, cars and petrol,…

Question 20

what are substitute goods

Answer 20

goods that satisfy the same needs and thus can be considered as alternatives to each other.

e.g. different brands of cereal, coffee, milk…

Question 21

what is a normal good

Answer 21

a good that obeys the Law of Demand and which has a positive income effect

Question 22

what is an inferior good

Answer 22

a good with a negative income effect

Question 23

what is a giffen good

Answer 23

goods with positive price effect

i.e. more is bought as the price rises and less as the price falls

Question 24

exceptions to the law of demand

Answer 24

giffen goods, snob value items, expectation goods, addictive goods

Question 25

what is the price effect

Answer 25

substitution + income effect

Question 26

what is the substitution effect

Answer 26

more of the cheaper good will always be bought

Question 27

what is the income effect

Answer 27

because of increased real income, the demand for both goods can change

(the consumers purchasing power has increase)

Question 28

Can a normal good be a giffen good?

Answer 28

a giffen good must be inferior, but an inferior good can be giffen or normal

hence, a normal good cannot be a giffen good