Topic 2 - Demand Micro

Question 1

Demand

Answer 1

The quantity of a good or service that customers are willing and able to buy at a given price in a given time period

Question 2

Demand curve

Answer 2

Shows relationship between price of an item and quantity demanded over a period of time

Question 3

Why does the demand curve slope down?

Answer 3

(Income effect)
-When price falls, the real income of consumer rises
-Increases purchasing power, allows more of that good to be bought

(Substitution effect)
-When price falls, it becomes cheaper relative to its substitutes
-Consumers switch from more expensive substitutes

(Diminishing marginal activity)
Each extra unit of a good or service will eventually give less extra satisfaction.

Question 4

Factors that affect demand

Answer 4

Consumer tastes and preferences
Consumer population and consumer confidence
Income available to the consumer
Interest rates / availability of credit
Prices of other goods and services
Substitute goods and complementary goods

Question 5

Outwards shift in demand curve

Answer 5

Means there will be more quantity demanded at the same price

Question 6

Complements

Answer 6

They are joint demand when they are bought together. For example: Fish and Chips, iphone and apps, cars and fuel.

Goods that are consumed together. They are bought together often.

Question 7

Derived demand

Answer 7

As demand for cars rises, the demand for steel will also rise

Question 8

Complementary demand

Answer 8

As demand for mobile phone increases, so does demand for phone calls

Question 9

What shifts demand

Answer 9

Substitute prices
Complementary prices
Earnings
Population
Tastes and preferences and advertisting
Interest rate / availability of credit
Confidence