demand - law of demand

Question 1

what is a market

Answer 1

A place where two or more parties engage in an economic transaction.

Question 2

what are competitive markets

Answer 2

Competitive markets have many sellers and buyers acting independently.

Question 3

what are examples of different types of markets

Answer 3

Can be Local, National or International
Can be Physical or Digital/Virtual
Can be Product or Resource based

Question 4

what does demand refer to

Answer 4

the quantity of a product that purchasers are willing and able to buy at various prices per period of time’.

We are focused on ‘Effective Demand’ and not ‘Notional Demand’.

Question 5

what is law of demand

Answer 5

“As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus”.

Question 6

why does the demand curve slope downwards

Answer 6

Income Effect- As price goes up, people have less income so demand less. Substitute effect: as price increases, individuals will substitute for alternative goods.
Diminishing Marginal Utility

Question 7

what is utility

Answer 7

Satisfaction received through consuming goods.

Question 8

what is marginal utility

Answer 8

Extra Satisfaction gained from consuming another unit of a good.

Question 9

what is diminishing marginal utility

Answer 9

Reduced rate of Satisfaction gained from consuming additional units of a good.

The lower satisfaction at higher quantity means a good is valued less and therefore people will pay less.

Question 10

what are normal goods

Answer 10

goods & services that see a rise in demand when incomes rise.

Question 11

what are inferior goods

Answer 11

goods & services that see a fall in demand when incomes rise

Question 12

what does an increase in demand do to the graph

Answer 12

An increase in demand due to a non-price determinant will see the demand curve shift rightwards. (Outward)

Question 13

what does a decrease in demand do to the graph

Answer 13

A decrease in demand will lead to the demand curve shifting leftwards

Question 14

explain conditions of demand- income (normal goods)

Answer 14

For most goods, as income rises, the demand for the product will
also rise. Such goods are known as normal goods. As income rises,
the demand curve for a normal good will shift to the right. The size
of the shift in demand will depend upon the good itself.

Question 15

explain conditions of demand- income (inferior goods)

Answer 15

If a product is considered to be inferior, then demand for the product
will fall as income rises and the consumer starts to buy higher priced
substitutes in place of the inferior good. Examples of inferior goods
may be cheap wine or “own brand” supermarket detergents.

As
income rises, the demand curve for the inferior good will shift to the
left. When income gets to a certain level, the consumer will be
buying only the higher priced goods and the demand for the inferior
good will become zero. Thus the demand curve will disappear

Question 16

explain conditions of demand- substitutes

Answer 16

If products are substitutes for each other, then a change in the
price of one of the products will lead to a change in the demand
for the other product. For example, if there is a fall in the price
of chicken in an economy, then there will be an increase in the
quantity demanded of chicken and a fall in the demand for beef,
which is a substitute.This would lead to a movement along the demand curve for
chicken and a shift to the left of the demand curve for beef.
This change in the
price of a substitute means that some consumers will switch from
buying beef to buying chicken and there will be a fall in the
demand for beef,

In the same way, an increase in the price of a substitute product
will lead to a fall in the quantity demanded of that product and an
increase in demand (shift of the demand curve to the right) for the
substitutes whose prices have not changed.

Question 17

explain conditions of demand- complements

Answer 17

Complements are products that are often purchased together, such
as printers and ink cartridges. If products are complements to each
other, then a change in the price of one of the products will lead to
a change in the demand for the other product. For example, if
there is a fall in the price of DVD players in an economy, then
there will be an increase in the quantity demanded of DVD players
and an increase in the demand for DVDs, which are a complement.
This would lead to a movement along the demand curve for DVD
players and a shift to the right of the demand curve for DVDs.

Question 18

what are non price determinants

Answer 18

Factors other than price that influence the demand of a good or service.

Changing the price = moving along the demand curve.

Question 19

what will an increase in demand do to the graph

Answer 19

An increase in demand due to a non-price determinant will see the demand curve shift rightwards. (Outward)

Question 20

what will a decrease in demand do to the graph

Answer 20

A decrease in demand will lead to the demand curve shifting leftwards.

Question 21

explain complementary goods with demand

Answer 21

Complementary Goods are goods which are used together.
E.g. Airpods & Iphone, Fries & Ketchup

If the price of a complementary good increases, demand for the original good will decrease.