Demand

Question 1

Explain the relationship between Price and Demand

Answer 1

Inverse relationship, as price rises, demand falls (In certain situations, depending upon elasticity and type of good).

Question 2

Explain the substitute effect

Answer 2

higher prices force consumers to look elsewhere

Question 3

Explain, with a diagram, the impact of changes in price and changes in the determinants of Demand, using movements and shifts

Answer 3

Changes in price will only lead to changes in quantity demanded. This is because the price changes the willingness for someone to buy the good, not the desire for it.

Question 4

What shifts demand?

Answer 4

• Population - larger population leads to more demand
  
  • Income - Higher income leads to higher disposable income which leads to higher MPC which leads to higher demand
  • Related goods - If the price of a substitute good (Good B) falls then the consumers will seek more of good B than Good A
  • Advertising - Increasing advertisement will lead to a more loyal customer base, which in turn will increase demand and also reach more people, possibly expanding demand
  • Tastes and Fashions - If consumer tastes change or their fashions, then so will their demand for certain goods
  • Expectations - What people expect to happen to the market share, and share prices, whether or not they will buy or sell it.
  • Seasons - Demand changes according to the seasons.

Question 5

Explain joint, competitive and composite demand with the aid of a diagram

Answer 5

Joint Demand - When goods are bought together E.g. Memory card and camera

Competitive Demand - The demand for goods which are substiutable E.g. Samsung vs Sony TV’s

Composite Demand - When the good has more htan one use and is therefore demanded by more than one producer for a variety of reasons. E.G. Milk: Cheese, yoghurt, coffee.