Demand

Question 1

What is demand?

Answer 1

A SCHEDULE that shows the various AMOUNTS of a PRODUCT that CONSUMERS are willing to BUY at each specific PRICE in a SERIES of possible prices during a specified TIME PERIOD.

Question 2

What does the market price depend on?

Answer 2

demand and supply

Question 3

Law of Demand

Answer 3

Other things being equal, as price increases, the corresponding quantity demanded decreases.

They have an inverse relationship.

Question 4

What does the “other things equal” assumption refer to?

Answer 4

• Consumer income and tastes
• Prices of related goods
• other things besides the price of the product being discussed

Question 5

What are the three main explanations for the law of demand? (DIS)

Answer 5

1. ) Diminishing marginal utility
2. ) Income effect
3. ) Substitution effect

Question 6

Diminishing marginal utility

Answer 6

As a consumer consumes additional units of a good or a service, each additional unit results in less satisfaction; “the first bite of a sandwich in the best bite.”

Question 7

Income effect

Answer 7

Change in a demand for a good as consumer income changes.

Question 8

Substitution effect

Answer 8

Consumers switching to cheaper products as prices increase.

Question 9

The Demand Curve

Answer 9

A.) Illustrates the INVERSE relationship between price and quantity
B.) Downward slope indicates lower quantity at a higher price; upward slope indicates higher quantity at a lower price.
- quantity is on the horizontal axis
- price is on the vertical axis

Question 10

Determinants of Demand (7) (Buyers want a Taste of all their Future Goods) [when demand is increasing]

Answer 10

• increase in the number of BUYERS
• favorable change in consumer TASTE
• consumers expect higher prices/wages in the FUTURE
• Normal goods if income increases
• Inferior goods if income decreases
• Complementary goods if price decreases
• Substitute goods if price increases