1.3.1 Demand

Question 1

Demand

Answer 1

the quantity of a product consumers and willing and able to buy at different prices in a specified time period

Question 2

Effective demand

Answer 2

The combination of desire for a product or service with the ability or readiness to pay (must have sufficient, real purchasing power)

Question 3

Latent demand

Answer 3

A desire for a product without the purchasing power, usually due to advertising

Question 4

Derived demand

Answer 4

Demand for one product is strongly linked to the demand for another product (eg. demand for steel is linked to demand for new vehicles)

Question 5

Consumer sovereignty

Answer 5

Suggests that consumers control resource use by deciding what to buy

Question 6

Tastes

Answer 6

Involve consumer preferences for specific products → likely to change over time and be influenced by factors such as fashion

Question 7

Advertising and branding

Answer 7

Ways in which businesses try to influence demand for their products; they can succeed in changing tastes

Question 8

substitutes

Answer 8

Alternatives to a product in competitive demand

Question 9

Complementary goods

Answer 9

Tend to be used together as they complement eachother in joint demand (eg ps5 and ps5 controller)

Question 10

Income

Answer 10

Flow of money received by an individual or household over time → they are usually a reward for economic activity

Question 11

Population

Answer 11

A group of people fitting a particular description, from the national population (total inhabitants) to the population in a target market

Question 12

Price

Answer 12

Money amount paid by the buyer to the seller in a transaction → usually set by market forces but can sometimes be regulated by government

Question 13

Demand schedule

Answer 13

A table showing the quantities demanded at different price levels

Question 14

Demand curve

Answer 14

A graphical representation of the relationship between price and quanitity

Question 15

Contraction of demand

Answer 15

Move up and left on a demand curve when price rises

Question 16

Extension of demand

Answer 16

Move down and right on a demand curve when price falls

Question 17

A shift in the demand curve

Answer 17

Occurs when quantity demanded changes for reasons other than price (eg. change in income, tastes and fashions)

Question 18

Normal good

Answer 18

A good whose demand increases when people’s incomes increases

Question 19

Inferior good

Answer 19

A good whose demand decreases as people’s incomes increases

Question 20

how do businesses succeed, concerning consumers (3)

consumer choice

Answer 20

• a business will fail unless it can attract customers.
• When people make choices on what to do with their limited incomes, they have many alternatives –> any spending choice has an opportunity cost
• It is not enough that people admire or even want the product, but whether or not they will buy it

Question 21

what should a rational consumer do

Answer 21

• A logical/rational consumer should make choices bringing the highest possible satisfaction from the available income
• in reality, consumers don’t always make rational choices

Question 22

explain consumer sovereignty (3)

Answer 22

• Spending opportunities that attract are those that we value the most → we want things enough to pay for them, so businesses can earn sales revenue by supplying what we want
• suggests consumers ultimately decide what will be produced, and in the process how resources will be used
• Market forces, (involving consumers’ demand interacting with producers’ supply) lead to an allocation of resources that gives us the best selection of goods and services obtainable from existing resources –> CONSUMER SOVEREIGNTY

Question 23

what are the limitations of consumer sovereignty (2)

Answer 23

1. Depends on markets being competitive
2. If clever advertising create desire for a product, it is really the businesses have power (eg fashion trends)

Question 24

how is the market guided by the ‘invisible hand’ (2)

Answer 24

• increasing demand creates an incentive for businesses to produce more and meet that demand.
• If resources for this become scarce, costs rise and higher prices will make consumers buy less and vice versa (resources are readily available, costs lower, and lower prices will make consumers buy more increasing demand)

Question 25

what is the relationship between price and quantity concerning DEMAND (4)

Answer 25

1. Higher price of a normal good = higher opportunity cost = lower demand 2. Lower price of a normal good = lower opportunity cost = product becomes more attractive = quantity demanded should increase - This contributes to a large extension or expansion in total quantity demanded as consumers respond to changes in price - There is an INVERSE relationship between price and quantity demanded

Question 26

what does a demand schedule include

Answer 26

1. a table 2. lists prices 3. lists quantity sold

Question 27

what does a demand curve include

Answer 27

1. shows the link between price and quantity demanded 2. has a straight line diagram sloping downwards from left to right (NEGATIVE CORRELATION) 3. assumes that the only variables affecting demand are PRICE --> omits other variables

Question 28

describe movements along a demand curve

Answer 28

- A fall in the price causes an EXTENSION of demand (movement down and right along it) - A rise in the price will cause a CONTRACTION of demand (movement up and left along the existing demand curve )

Question 29

describe shifts in demand

Answer 29

- A change in any of the other relevant factors will cause a shift to a new demand curve - A change that increases demand will move the curve to the RIGHT (sudden fashion of the product) - A change that decreases demand the curve shifts LEFT (incomes fall)

Question 30

how do demand curves work

Answer 30

1. Movement along the same curve = when price changes 2. Shifts to a new curve = when any other determinant changes

Question 31

name 3 exceptions to the demand curve

Answer 31

1. Speculation: gold, stocks, shares, property, special edition items 2. Conspicuous consumption: snob value → something expensive seen as a status symbol (ie designer clothing, diamond jewellery, super cars) 3. Giffen goods: people buy things that are expensive with rising prices because they still need it (ie potatoes in Irish potato famine)

Question 32

Name 6 variables other than price that affect demand

Answer 32

1. consumer tastes 2. advertising 3. substitutes 4. complementary goods 5. income available to the consumer 6. population

Question 33

Consumer tastes and preferences and demand

Answer 33

personal preferences partly shaped by experience, cultural background, mood or seasons

Question 34

Advertising and demand

Answer 34

simply giving information, or shaped to persuade; strong brands tend to have advantages over unknown alternatives

Question 35

Substitutes and demand

Answer 35

how attractive are alternative products to the consumer a) Substitutes are goods in competitive demand, as they are replacements for other products b) Price, design, make and taste determines which substitutes are more desirable/popular

Question 36

Complementary goods and demand

Answer 36

two goods usually bought together as they are used together a) They are in joint demand b) A rise in price for the complementary good should cause the demand for the other good to decrease c) They rise and fall in demand together, depending on the price change of only ONE of the pair/group

Question 37

Income available to the consumer and demand

Answer 37

- income level and distribution affects how much people will spend - If income distribution is uneven, certain demographics who tend to be poorer (etc. younger people) will buy less goods and services that are tailored for them, reducing their demand

Question 38

Population and demand

Answer 38

- how many people are they to buy goods and services? - The age structure of a population determines which goods and services are more popular as some are more appropriate for certain age demographics than others

Question 39

Price and demand

Answer 39

how much do goods and services cost, and how much are people willing to spend?

Question 40

Name 3 other variables that affect demand

Answer 40

1. Interest rates 2. Speculation → people are predicting prices rising/falling 3. Social changes

Question 41

explain normal and inferior goods

Answer 41

Normal goods are goods whose demand RISES as income rises and vice versa The exceptions are inferior goods: - Cheaper, poorer quality substitutes for some other good (basics foods, cigarettes, second hand clothes) - Higher income = can switch from inferior good to a preferred alternative - Demand for inferior goods FALLS as income rises