Kognity Ch. 1.1.3 - Determinants of demand

Question 1

What is the difference between movement along the demand curve and a shift of the demand curve?

Answer 1

Changes in price cause movement along the demand curve, indicating changes in the quantity demanded.
Changes in non-price determinants will cause a left/inward shift of the demand curve or a right/outward shift, indicating a decrease/increase in demand, respectively.

Question 2

What are the non-price determinants of demand?

Answer 2

MAIN:
Income
Price of related goods
Tastes and preferences
Demographic changes
OTHER:
Future expectations
Number of potential buyers (size of market)
Government policy
Seasonal changes

Question 3

What are the three types of goods affected by changes in income?

Answer 3

Normal goods
Inferior goods
Luxury goods

Question 4

What are substitute goods?

Answer 4

Substitute goods are goods which have similar characteristics and uses to consumers. Therefore, when the price of one substitute good increases, the demand for the other similar substitute good increases, as people switch their consumption to the similar good that has become relatively cheaper.

Question 5

What are complementary goods?

Answer 5

Complementary goods are goods which are consumed together. Therefore, when the price of one good increases, the demand for both goods decreases; people tend to consume less of both complementary goods even when just one of them has become more expensive.