Demand

Question 1

What is Demand?

Answer 1

The demand for a good or service is the total quantity which will be purchased at any given price over a specific time period

Question 2

What does the law of Demand state?

Answer 2

When the price of a good increases, the quantity demanded for the good decreases. When the price of a good decreases, quantity demanded for the good increases

Question 3

What are the exceptions to the law of demand?

Answer 3

Giffen goods, snob goods/goods of ostentation, goods of expectation/speculative goods and goods of addiction

Question 4

What are the factors that affect demand?

Answer 4

Change in price of the good itself, change in income, change in price of other goods, change in consumer taste, consumer expectation and unplanned factors/events

Question 5

What are complementary goods?

Answer 5

When one good cannot be used without the other e.g cars and petrol. These goods are in joint demand. A change in the price of a complementary good will also affect quantity demanded

Question 6

What is derived Demand?

Answer 6

This exists when a product is not purchased for its own direct utility but for the additional utility that it adds to another product, e.g the demand for bricks is derived from the demand for houses

Question 7

What are substitute goods?

Answer 7

Goods that can fulfil the same function as the good in question e.g Pepsi and coke

Question 8

What is individual Demand?

Answer 8

Refers to the quantity of a good and individual consumer demands at different prices

Question 9

What is total demand/aggregate demand/market demand?

Answer 9

Refers to the total quantity of a good all consumers demand at each price

Question 10

What is joint demand?

Answer 10

Occurs when the demand for one good is joint with the demand for another good

Question 11

What is composite demand?

Answer 11

Occurs when a good is required for a number of different uses e.g sugar

Question 12

What is effective demand?

Answer 12

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 13

What is consumer surplus?

Answer 13

The benefit to consumers due to the difference between what consumers actually pay to consume a good and what they would’ve been willing to pay, rather than go without the good e.g if you want to purchase a bourse and have a budget of €300,000 and you mange to buy it for €250,000 you have a consumer surplus of €50,000