Supply and Demand

Question 1

Demand

Answer 1

Demand is the quantity of a good/service that consumers are willing and able to buy at a given price, at a particular time.

Question 2

Income effect

Answer 2

Assuming a fixed level of income, the income effect means that as a price falls the amount that consumers can buy with their income increases, and so demand increases.

Question 3

Substitution effect

Answer 3

A fall in the price of a good makes it relatively cheaper than other goods, so consumers will increase demand for the cheaper good and reduce demand for the more expensive good.

Question 4

Factors causing a shift in demand:

Answer 4

• Changes in tastes and fashion
• Changes to people’s real income
• Normal goods
• Inferior goods
• A more equal distribution of income
• Substitute goods
• Complementary goods
• Introduction of a new product
• Derived demand
• Composite demand

Question 5

Normal goods

Answer 5

Goods that people will demand more if their real income increases. This means that a rise in real income causes the demand curve to shift to the right.

Question 6

Inferior goods

Answer 6

Goods which people demand less of if their real income increases. This means that a rise in real income causes the demand curve to shift to the left.

Question 7

A more equal distribution of income effect on the demand curve?

Answer 7

May cause the demand curve for luxury goods to shift to the left and the demand curve for other items to shift to the right.

Question 8

Substitute goods (competitive demand) link

Answer 8

Goods that are alternative to each other.

Question 9

Complementary goods

Answer 9

Goods that are often used together, so they’re in joint demand.

Question 10

Derived demand

Answer 10

The demand for a good or a factor of production used in making another good or service.

Question 11

Composite demand

Answer 11

Goods that have more than one use.