Demand for Goods and Services

Question 1

When do 2 products/services become substitute goods?

Answer 1

When increase in price of one good will lead to increase in quantity demanded of the other

Question 2

When do 2 products/services become complement goods?

Answer 2

When increase in price of one good will lead to decrease in quantity demanded of the other

Question 3

What is the substitute effect?

Answer 3

When price of one good/service falls, consumers will buy more of different good/service that’s cheaper

Question 4

What is the income effect?

Answer 4

When price of a good/service falls, demand for that good/service will increase as consumers can afford greater quantity

Question 5

When is a demand contraction caused?

Answer 5

When there is rise in price

Question 6

When is demand extension caused?

Answer 6

When there is fall in price

Question 7

Normal good

Answer 7

Good whose quantity demanded will increase as a result of increase in income

Question 8

Inferior good

Answer 8

Good whose quantity demanded will decrease as a result of increase in income