Determinants of demand

Question 1

What is a demand curve?

Answer 1

• A demand curve shows the relationship between price and quantity demanded.

-The causes of shifts are also portrayed in the demand curve.

Question 2

What is considered a ‘normal good’?

Answer 2

• One where, if price rises, then the demand will fall and vice versa; a negative correlation is conveyed.

Question 3

What is the Rational choice theory?

Answer 3

-The assumption that all individuals make logical decisions that will maximise their personal benefit. For example: self-interest.

Question 4

What is indicated by a movement along the demand curve?

Answer 4

• A change in price is always indicated.

Question 5

What are the rules for drawing a demand curve?

Answer 5

-Label the y-axis price and the x-axis quantity.

-Draw the demand curve, downward sloping from left to right and label it demand.

-Then to find the quantity demanded at any given price, select a price, and draw a dotted line down towards the x-axis to show quantity.

Question 6

What is the definition of Demand?

Answer 6

• Demand can be defined as the amount of a good or service that consumers are willing and able to buy at any given price.

Question 7

What are the main influencing factors of demand?

Answer 7

-The price of the good.

-Consumer income.

-Prices of other goods and services.

-Consumer tastes and fashion.

-Other factors, like advertising.

Question 8

What does the equation (qd = f(p,y,p of other goods) mean?

Answer 8

• qd= quality demanded
• f= is the function of
• p=price
• y=consumer income

Question 9

How does the price of the good link to the quality demanded?

Answer 9

-The price increasing, would lead to the quality demand to decrease. (vice versa)

Question 10

How does consumer income link to the quality demanded?

Answer 10

• As income of consumers increases, demand for normal goods will increase.
• This is shown by a shift to the right of the demand curve.

Question 11

What is an inferior good?

Answer 11

-An inferior good is one where demand decreased as incomes increase.

Question 12

The prices of other goods and services link to the quality demanded?

Answer 12

-These will have a major impact on the quantity demanded on a product.

Question 13

What is a substitute product?

Answer 13

• It acts as an alternative, therefore creating competition.
  (Fanta for Cocacola)

Question 14

What is a complementary product?

Answer 14

-A product which is bought alongside a good or service.

-If the price of good A increase, the demand for good B will decrease

Question 15

How does Consumer tastes or fashion link to the quality demanded?

Answer 15

• People’s tastes change over time and demand for fashionable products changes regularly, often manipulated by advertising.

-As products become more fashionable, there is an increase in demand.

Question 16

How do other factors link to the quality demanded?

Answer 16

• A variety of other factors will impact the quality demanded of a good or service including:
  -population changes
  -advertising
  -the level of competition in the market

Question 17

What happens to the demand curve, if the change in demand is caused by any factor other than price?

Answer 17

• The demand curve shifts.
• An increase in demand is shown by a shift to the right.

-A decrease in demand is shown by a shift to the left.

Question 18

What are the factors that cause a shift in the demand curve include?

Answer 18

-Changes in the price or availability of substitutes.

-Changes in the price or availability of complements.

-Changes in consumer income.

-Changes in taste.

Question 19

What is the definition of complements?

Answer 19

-The products that are bought alongside another product.

Question 20

What does ‘ceteris paribus’?

Answer 20

-This means that ‘all other factors remain the same’.

Question 21

What are Veblen goods?

Answer 21

-A special type of good identified by Veblen.

-Veblen is an American Economist (1857-1929), who identified a ‘snob’ effect, were people paid more for certain products as their price increased.

-He believed that this was due to the increased status that buying higher priced goods conferred on the buyer.

Question 22

What is an inferior good?

Answer 22

-Where demand increase as incomes increase.

Question 23

What is a Giffen good?

Answer 23

• Scottish Economist Sir Robert Giffen identified certain inferior products where demand rose as prices increase.

-These products where call the Giffen goods.

-The demand for a factor of production that results from the demand for the product that it is used to make.

Question 24

What is the law of demand?

Answer 24

-When the price of a good rises, the quantity demanded will fall.