Unit 2.1 Demand

Question 1

Demand

Answer 1

willingness and ability of consumers to pay a sum of money for a good or service at a given price and at a given point in time

Question 2

Law of demand

Answer 2

The law of demand states that as the price of a good or service rises, the quantity demanded falls and as the price of a good falls, the quantity demanded rises (ceteris paribus). As such, there is a negative relationship between price and quantity demanded.

Question 3

Acronym of non price determinants

Answer 3

PASIFIC

P-opulation (as higher population, higher demand vice versa)

A-dvertising (god adverstising, higher demand and vice versa)

S-ubsitutes price (rival good to something else, if price of pepsi increases, people will be more willign and able to buy coke, shifting curve right)

I-ncome (normal goods as income rise, demand will increase e.g. luxury cars while inferior goods, income rise demand decrease e.g. public transport vice versa with inferior goods and with incomes decreasing too)

F-ashion/trends (if fashion chnages to certain good or service, demand curve will shift to the right or left)

Interest Rate (borrow money in order to buy so interest rate goes down people will borrow more and spend more on borrowed goods, shifting right and vice versa)
Complement price (good thats bought with another, printer ink e.g. price printer goes up, printer ink shift left)

Question 4

Why is there dowwards slope

Answer 4

Income effect and substitution effect

Question 5

Income effect

Answer 5

As prices go up there is a contraction of demand as consumers are less willing and able to afford the good or service, as price go down consumers are more willing and able to afford the good or service, leading to an extension of demand.

Question 6

Substitution effect

Answer 6

Well, as prices go up, other goods and services become more price competitive. So we switch our demand, we switch our consumption towards buying those goods and services instead, which is why demand contracts for this good or service

Question 7

Define substitute goods.

Answer 7

Goods that satisfy the same need/want.

Question 8

Define complementary goods.

Answer 8

Goods that are used, and therefore demanded, together.

Question 9

Define derived demand

Answer 9

Demand for a good or service is derived from the demand of something else (e.g. cars and aluminum)

Question 10

Composite demand

Answer 10

The idea that 2 goods require the same input to make them therefore if there is the increase in the production of one good there will be the decrease in the supply of the other due to less input available to make the other good