Demands For Goods And Services

Question 1

Demand

Answer 1

Demand for a good or service is the quantity that purchasers are willing and able to buy at a given price in a given period of time

Question 2

Demand has to be effective

Answer 2

• Only if demand for a product is backed up by a willingness and ability to pay the market price does demand becomes actual
• The basic law of demand is that demand varies inversely with price - lower prices make products more affordable for consumers

Question 3

Ceterus Paribus

Answer 3

All else being equal

Question 4

The demand curve : Price and quantity demanded

Answer 4

• Only changes in the market price cause a movement ALONG THE DEMAND CURVE
• A higher price leads to a contraction of quantity demand
• A lower price leads to an expansion of quantity demanded

Question 5

Income effect

Answer 5

• A fall in price increases the real purchasing power of consumers
• This allows people to buy more with a given budget
• For normal goods, demand rises with an increase in real income

Question 6

Substitution effect

Answer 6

• A fall in the price of good X makes it relatively cheaper compared to substitutes
• Some consumers will switch to good X leading to higher demand
• Much depends on whether products are close substitutes

Question 7

What causes a movement along the demand curve?

Answer 7

A change in price

Question 8

Veblen goods

Answer 8

A good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol

Question 9

Giffen goods

Answer 9

Essential items which consumers have to buy even if the price rises, but this also limits the disposable income which makes buying slightly higher options even more out of reach. Therefore consumers buy even more giffen goods.

Question 10

Complementary goods

Answer 10

Products which are bought and used together

Question 11

Derived demand

Answer 11

Is the demand for a factor of production used to produce another good or service

Question 12

Composite demand

Answer 12

Exists where goods gave more than one use - an increase in the demand for one product leads to a fall in supply of the other.

• An example is milk which can be used for cheese, yoghurts, butter and other products

Question 13

Seasonal demand

Answer 13

Seasonality refers to fluctuations in output and sales related to the season of the year.

• eg. Easter eggs, summer fruit, ski season products

Question 14

What causes shifts of the demand curve?

Answer 14

1. Substitute prices
2. Complementary prices
3. Earnings ( changes in real income of consumers/ distribution of income
4. Population
5. Tastes
6. Interest rates
7. Confidence
8. Seasonal factors

Question 15

Utility

Answer 15

Is a measure of the satisfaction that we get from purchasing and consuming a goods or service.

Question 16

Total utility

Answer 16

The total satisfaction from a given level of consumption

Question 17

Marginal utility

Answer 17

The change in satisfaction from consuming an extra unit of a good or service

Question 18

Law of demand

Answer 18

The is usually an inverse relationship between the price of a good and demand.

• A prices fall, we see an expansion in demand
• As prices rise, there will be a contraction of demand

Question 19

Ceteris paribus

Answer 19

All other factors are constant except one - the price of the product itself

Question 20

For most goods the demand curve slopes in what direction?

Answer 20

Downwards

Question 21

If someone wants to buys something but cannot afford it, they are exhibiting which of the following?

Answer 21

Demand but not effective demand

Question 22

Inferior goods

Answer 22

A good is a good whose demand decreases when consumer income rises, unlike normal goods for which the opposite is observed.