Demand basics~ 1.2.2

Question 1

Define Demand?

Answer 1

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

Question 2

What does the law of demand state?

Answer 2

There is an inverse relationship between price and quantity demanded. As price increases, QD start decreasing and vice-versa assuming ceteris paribus

Question 3

What is a contraction and extension in a Demand diagram

Answer 3

Contraction-when the point moves downwards
extension-when the point moves upwards
-this happens when it is caused by a price factor

Question 4

Define ‘income effect’

Answer 4

When prices rise, income isn’t also going to rise so purchasing power remains the same consumers are less willing and able to buy

Question 5

Define ‘substitution effect’

Answer 5

As prices of these goods and services will rise it will become more price-competitive, so consumers switch demand and consumption too buy other goods and services.

Question 6

When demand shifts to the left or right, why does that happen?

Answer 6

This happens when it is a non-price factor.

Question 7

what are the factors that involve demand to shift?

Answer 7

Population
Advertising
Substitute price
Income
Fashion
Interest rate
Complements price

Question 8

How is population a determinant of demand shifting?

Answer 8

As the population rises, demand will rise and shift to the right and vice-versa.

Question 9

How is Advertising a determinant of demand shifting?

Answer 9

Good advertising means demand will shift to the right and vice-versa.

Question 10

How is income a determinant of demand shifting?

Answer 10

As income rises demand will rise so shift to the right. If income decrease the demand for normal goods will decrease and demand will shift to the right.

Question 11

What is the effect of inferior goods as a determinant of demand?

Answer 11

Inferior goods will have the opposite effect so if incomes rise, demand will shift to the left but if incomes decrease then demand will shift to the right.

Question 12

How is the interest rate a determinant of demand?

Answer 12

If interest rates become cheaper consumers are more willing to borrow so demand will shift to the right, but if interest rates become expensive consumers are less willing to borrow so demand will shift to the left.