2.1b Demand

Question 1

Definition of Individual demand:

Answer 1

The various quantities of a good or service a consumer is willing and able to buy different prices during a period of time, ceteris paribus.

Question 2

What is known as effective demand?

Answer 2

When a consumer is not only willing to buy a good or service, but also ABLE to buy it

Question 3

Definition of Market demand:

Answer 3

The sum of all individual demands for a product, at every price

Question 4

On the demand curve, what is on the y and x axis?

Answer 4

y axis - price

x axis - quantity demanded

Question 5

What does the demand curve not show?

Answer 5

The demand curve does not show how much the consumer actually buys, only shows the quantity demanded.

Question 6

What is the law of demand?

Answer 6

The law of demand states there is a negative relationship between the price of a good and it’s quantity demanded.
(the higher the price, the lower the quantity demanded)

Question 7

What causes a movement along the demand curve?

Answer 7

A change in price

Question 8

What will the demand curve show if the price increases?

Answer 8

The quantity demanded will decrease. The graph will contract

Question 9

What will the demand curve show if the price decreases?

Answer 9

The quantity demanded will increase.

The graph will expand/ extend

Question 10

What causes a shift of the demand curve?

Answer 10

Any change in a non-price determinant.

Any other factor EXCEPT price

Question 11

If the demand increases, how will the demand curve shift?

Answer 11

Outward/ To the right

Question 12

If the demand decreases, how will the demand curve shift?

Answer 12

Inward/ To the left

Question 13

What are the 7 non-price determinants of demand?

Answer 13

1. Income in the case of a normal good
2. Income in the case of inferior goods
3. Preferences and tastes
4. The price of substitutes
5. Price of complements
6. Number of consumers
7. Future price expectation

Question 14

How is income in the case of a normal good a non-price determinant?

Answer 14

A normal good, as income increases the demand for the good increases.
Most goods are normal goods , necessities, luxuries…

Question 15

How is income in the case of an inferior good a non-price determinant?

Answer 15

As income increases, the demand for inferior goods decreases,
ex. Lays crisps instead of carrefour crisps

Question 16

How is future price expectation a non-price determinant?

Answer 16

If consumers expect a future increase in the price of the good, they will demand more of the goods now.

Question 17

What is the definition of ‘utility’?

Answer 17

Utility is the satisfaction of consuming a good (benefit)

Question 18

What is the definition of ‘marginal utility’?

Answer 18

Marginal utility is the additional utility received consuming one extra unit of the good

Question 19

What is the law of diminishing marginal utility?

Answer 19

The greater the units of a good consumed, the smaller the marginal utility derived from consumption

Question 20

The marginal benefit curve is the same as the _____ curve

Answer 20

Same as the DEMAND curve

Question 21

What are the 3 reasons the demand curve slopes downwards?

Answer 21

1. The law of marginal utility
2. The substitution effect
3. The income effect

Question 22

Why is the ‘substitution effect’ a reason for the demand curve to slope downwards?

Answer 22

As the price of a good increases, consumers will switch their consumption to substitute goods

Question 23

Why is the ‘income effect’ a reason for the demand curve to slope downwards?

Answer 23

As the price of a good decreases, the purchasing power of consumer increases as they can now buy more goods

Question 24

What is another term to describe ‘real income’?

Answer 24

purchasing power