Demand

Question 1

Quantity demanded is

Answer 1

quantity of good people will buy at today’s price

Question 2

Demand function is

Answer 2

quantity of a good people would buy in a given period

Question 3

The demand curve shows

Answer 3

relationship between price and quantity demanded

Question 4

The law of demand states

Answer 4

Price and demand quantity have a inverse relationship (downward sloping)

Question 5

Substitution effect

Answer 5

Other things will have better value if price increases

Question 6

Income effect

Answer 6

Less disposable income if price goes up

Question 7

How does demand relate to MRS?

Answer 7

downward slope of the demand curve reflects diminishing MRS. As the consumer has more of the good, additional units
are valued less highly and the consumer will only buy them if the price is lower

Question 8

The market demand curve is

obtained by

Answer 8

summing horizontally

over the individual demand curves

Question 9

How do non-price factors change the demand curve?

Answer 9

Whole curve shifts

Question 10

Difference between normal and inferior goods

Answer 10

Normal - buy more if real income increases

Inferior - buy less if real income increases

Question 11

Demand elasticity measures

Answer 11

How much demand changes when prices or incomes change

Question 12

3 factors that impact demand elasticity

Answer 12

1. Number of substitutes (product class - low, product - high)
2. Proportion of income spent on good
   3, Timescale - long term = more elastic

Question 13

How does income elasticity vary with a normal, inferior, luxury and necessity good?

Answer 13

+ve, -ve, >1, <1

Question 14

How can we differentiate between a normal or inferior good using demand curves?

Answer 14

Increasing income will lead to less quantity of the inferior good purchased

Question 15

Revenue =

Answer 15

Price/unit * Number units sold

Question 16

How does total revenue change if you reduce the price of an elastic vs inelastic good?

Answer 16

Elastic - stays the same

Inelastic - decreases

Question 17

The mark-up is the difference between

Answer 17

price of product and cost of production

Question 18

Inverse demand (marginal willingness to pay) shows

Answer 18

How much we valued last unit bought

Question 19

Consumer surplus is the difference between

Answer 19

the maximum amount a
consumer would be willing
to pay for her or his actual
level of consumption and
what they actually pay

Question 20

Price discrimination is when

Answer 20

a firm charges different

prices to different consumers for similar goods

Question 21

First Degree Price Discrimination is when you

Answer 21

Charge a separate price to each customer

Question 22

Second Degree Price Discrimination

Answer 22

Price depends on how much you buy

Question 23

Third Degree Price Discrimination is when

Answer 23

The company divides the market into two (or more) groups with different demand functions - set eligibility rules e.g. student discount