Demand and Demand Curve

Question 1

Demand

Give the definition

Answer 1

• The quantity of a good/service that consumers are willing and able to buy at a given price at a given period of time

Question 2

Law of Demand

Answer 2

• There is an inverse relationship between priceand quality
• If P increases Quality Demand decreases ( and vice versa)

Question 2

Explaining downward-sloping Demand Curve

State the 3 Explanations

Answer 2

• Substitution Effect
• Income Effect
• Diminishing MArginal utility

Question 2

Substitution Effect

Explain

Answer 2

• As the price of a product decreases, it becomes more attractive compared to other similar products
• Consumers are more likely to switch to the cheaper option, leading to an increase in the quantity demanded

Question 3

Income Effect

Explain

Answer 3

• When the price of a product falls consumers have more real purchasing power.
• This allows them to buy more of the product, which leads to an increase in the quantity demanded

Question 4

Diminishing Marginal Utility

Explain

Answer 4

• As people consume more of a particular product, the additional satisfaction or utility they derive from each additional unit starts to diminish.
• This means they are willing to pay less for each successive unit, which contributes to the downward-sloping demand curve

Question 5

Derived Demand

Define and Give 4 Examples

Answer 5

• Derived Demand :The demand for a factor of production that is used to produce another good or service
• Steel:The demand for steel is trongly linked to the market demand for cars and the construction of new buildings
• Wood: Wood is a product where a lot of demand comes from the uses to which it can be put such as furniture & fencing
• Transport: A fall in demand for commuting during the pandemic led to a steep decline in the demand for public transport
• Minerals: Demand for and the world price of Cobalt and Lithium has surged as production of electric vehicles has grown

Question 6

Joint Demand

Answer 6

• Joint Demand: When the demand for one product is directly and positively related to amrket demand for a related good or service
• Two complements are said to be in joint demand and the cross-price elasticity of demand is negative
• Examples: Smartphone and apps, pasta and sauces, solar panels and batteries

Joint Demand occurs when demand for two goods or services is interdepend