Demand

Question 1

Markets where goods and services are bought and sold

Answer 1

1. A market is anywhere buyers and sellers can exchange goods and services
2. Sub-markets are smaller markets that make up a market. e.g. labour market is made up of lots of sub-markets, e.g. the market for teachers, engineers and doctors
3. Price charged for quantity sold of each good and service are determined by the levels of demand and supply in a market
4. The levels of demand and supply in a market are shown using diagrams. These diagrams demonstrate the price level and quantity demanded/ supplied of goods or services

Question 2

Demand for goods and services is different at different prices

Answer 2

1. Demand is the quantity of a good/service that consumers are willing and able to buy at a given price level.
2. Demand curve shows relationship between price and quantity.
3. EXAMPLE OF DEMAND CURVE PG 16.
   a) at price Pe the quantity Qe is deamnded.
   b) a decrease in price from Pe to P1 causes an extension in demand - it rises from Qe to Q1.
   c) an increase in price from Pe to P2 is a contraction in demand.
   d) movement along supply curve => changes in prices
4. demand curve slopes downwards - higher the price charged for a good, lower the quantity demanded
5. Consumers aim to pay the lowest price possible for goods and services. => lower prices => higher demand.

The relationship between price and quantity demanded can also be explained using the law of diminishing marginal utility, and the income and substitutional effects:

• Income effect = Assuming the fixed level of income, the income effect means that as a price falls the amount that consumers can buy with their income increases, and so demand increases.
• Substition effect = a fall in the price of a good makes it relatively cheaper than other goods, so consumers will increase deamdn for the cheaper good and reduce demand for more expensive.

Question 3

Changes in demand cause a shift in the demand curve

Answer 3

LOOK AT DIAGRAM ON PAGE 16 AND LEARN

1. A demand curve moves to the left when there is a decrease in the amount demanded at every price
2. A demand curve shifts to the right when there is an increase in the amount demanded at every price

Question 4

There are lots of factors that can cause a shift in the demand curve

Answer 4

1. Changes in tastes and fashion can => demand curve shifts to right is something is popular and to left when it is out of fashion
2. Changes to people’s real income, the amount of goods/ services that a consumer can afford to purchase with their income, can affect the demand for different types of goods differently.
   - Normal goods = those which ppl demand more of if their real income increases. rise in real income => demand curve shift to the left.
   - Inferior goods = goods which ppl demand less of as their real income increases. This means a rise in real income => shift the demand curve to the left, switch to more expensive products
   - More equal distribution of income may => cause deamnd curve for luxury goods to shift to the left - demand curve for other items to shift to the right. This is because they’ll be fewer really rich ppl left to afford luxury items.

Question 5

Changes in one market can affect demand in other markets

Answer 5

Some markets are interrelated which means that in one market affect a related market.

• Substitute goods are those which are alternatives to each other -e.g. beef and lamb. An increase in the price of one good will decrease the demand for it and increase the demand for its substitutes
• Complementary goods are often used together - in joint demand. Demand increases for one good then same for other.
• Introduction of new product may cause demand to shift to the left for goods that are substitutes for the new product and to the right for goods that are complementary to it.
• Derived demand = demand for good or factor of production which is used in making another good or service. E.g. an increase in demand for fencing will => increased derived demand for wood
• Composite goods = Some goods have more than one use. This means that changes in the demand curve for fuel could lead to changes in the demand curve for plastics