Micro- Economics (2.2)

Question 1

Demand

Answer 1

The willingness and ability to purchase a good or service at the given price in a given time period.

Question 2

Law of Demand

Answer 2

Demand varies inversely with price

Question 3

Individual Demand

Answer 3

The demand for a good or service by an individual consumer. This shows the amount they would be
prepared to buy at different prices. It does not tell us how many they will buy.

Question 4

Market Demand

Answer 4

The total demand for a good or service, found by adding together all individual demands.

Question 5

Causes and Consequences of Movement in the Demand Curve

Answer 5

1. Increase in quantity demanded due to a fall in price causing a movement down the curve - The price falls but the quantity demanded increases (an expansion in demand).
2. Decrease in quantity demanded due to an increase in price causing a movement up the curve- The price increases but the quantity falls (a contraction of demand)

Question 6

Shift in Demand

Answer 6

A complete movements of the existing demand curve either rightward or leftward.

Question 7

Factors Causing Shifts in Demand

Answer 7

• Income
• Population
• Marketing
• Tastes/Fashion
• Substitutes/Compliments
• Government policies
• Price expectations for future

Question 8

Consequences of Shifts in the Demand Curve

Answer 8

1. Increase in demand due to a rightward shift of the demand curve- both the price and quantity demanded of the product increases
2. Decrease in demand due to a leftward shift of the
   demand curve- both the price and quantity demanded of the product decreases

Question 9

Price Elasticity of Demand

Answer 9

A measure of the responsiveness of quantity demanded to a change in the price of the product. This means that if a price change leads to a big responsiveness in demand it is price elastic. If PED is inelastic it means that demand isn’t very responsive to a change in price.

Question 10

How to Calculate PED?

Answer 10

%change in Quantity Demanded/ %Change in Price

Question 11

The Effects of PED on Consumers

Answer 11

Governments could impose taxes on goods with inelastic demand. This affects consumers because they would have to pay more money no matter the change in price.

Question 12

The Effects of PED on Producers (Price Elastic)

Answer 12

Producers can use their knowledge of PED for they products to increase their total revenue. When demand is price elastic if price decreases the change in quantity is greater than the change in price, so total revenue increases. However, if price increases the change in quantity is greater than the change in price, so total revenue decreases.

Question 13

The Effect of PED on Producers (Price Inelastic)

Answer 13

When demand is price elastic, if price decreases, the change in quantity is less than the change in price so total revenue decreases. If price increases, the change in quantity is less than the change in price, so total revenue increases.