3.1 The Determinants Of Demand

Question 1

What is the nature of the market?

Answer 1

How demand and supply of goods and services interact with each other

Question 2

What is a market?

Answer 2

Voluntary meeting of buyers and sellers in which exchange takes place

Question 3

When does a market transaction occur?

Answer 3

Whenever a good and service is voluntary brought and sold

Question 4

What is effective demand?

Answer 4

The desire for a good or service to be backed by an ability and willingness to pay

Question 5

Demand?

Answer 5

Quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time

Question 6

Supply?

Answer 6

The quantity of a good or service that producers are willing and able to sell at a given price over a given period of time

Question 7

What are competitive markets?

Answer 7

Large number of buyers and sellers possess good market information and can easily enter and leave the market

Question 8

What is the market ruling price?

Answer 8

(Equilibrium price)

-price at which planed demand=planned supply

Question 9

When do competitive markets occur?

Answer 9

When there are a large number of buyers and sellers passively accepting the market ruling price

Question 10

How is the market ruling price set?

Answer 10

The interaction of all those taking part in the market

Question 11

What do highly competitive markets lack and what does this mean?

Answer 11

-entry and exit barriers

-new buyers and sellers can enter the market without incurring costs

Question 12

What are the two markets households and firms operate in?

Answer 12

Good market
Factor markets

Question 13

Market demand?

Answer 13

Quantity of a good or service that all consumers in the maker are willing and able to pay at different prices

Question 14

Individual demand?

Answer 14

Quantity of a good or service that a particular consumer or individual is able to but at different marker prices

Question 15

What does the demand curve show?

Answer 15

Relationship between the price of a good or service and the quantity of it demanded at different prices

Question 16

What is the x axis in a demand curve?

Answer 16

Quantity demanded per period of time

Question 17

When does a movement on the demand curve occur?

Answer 17

When the price of a good changes

Question 18

What is contraction in demand?

Answer 18

When a rise in price leads to less being demanded

Question 19

What is an extension of demand?

Answer 19

Fall in price leading to more goods being demanded

Question 20

What must we assume when we create a demand curve? What is this known as?

Answer 20

That all other variables that may also influence demand are constant

Ceteris Paribus

Question 21

What does Ceteris paribus translate to?

Answer 21

Other things being equal

Question 22

What can cause a shift in the demand curve (7 things)

Answer 22

-prices of substitute goods
-prices of complementary goodde
-derived demand
-composite demand
-incomes
-tastes and preferences
-improvement in tech

Question 23

What is composite demand?

Answer 23

When some goods have more than one use(oil can be used for plastics or petorl)

Question 24

What is derived demand?

Answer 24

Demand for a good or a factor of production used in the making of a good or service

Increase in demand for fencing increases demand for wood

Question 25

What are substitute goods?

Answer 25

Alternative goods that can be used for the same purpose

Question 26

What are complementary goods?

Answer 26

When two goods are component they experience joint demand

Question 27

Increase of demand vs decrease in demand on the graph

Answer 27

Increase-shift to the right Decrease-shift to the left

Question 28

What is a normal good?

Answer 28

Good for which demand increases as income rises and decreases as income falls

Question 29

What is an inferior good?

Answer 29

Good for which demand decreases as income rises and demand increases as income falls

Question 30

What are the 3 ways a demand curve can not be downward sloping?

Answer 30

-speculative demand -Veblen goods -goods for which consumers use price as indicator of quality

Question 31

How does speculative demand change the demand curve?

Answer 31

-demand changes as people speculate what will happen to houses or currency

Question 32

How does goods for which consumers use price as an indicator of quality change the demand curve?

Answer 32

-may be more demand for a good as price rises as customer thinks it’s better without actually knowing

Question 33

How can Veblen goods change the demand curve?

Answer 33

Companies try and sell products because they are more expensive than competitors -customers want these goods because they are “reassuringly expensive”

Question 34

market demamd curve diagram:

Answer 34

Question 35

shift in demand on a diagram(to the right):

Answer 35

Question 36

diagram: perfectly elastic demand

Answer 36

Question 37

diagram: perfectly elastic demand

Answer 37

Question 38

diagram: perfectly inelastic demand?

Answer 38

Question 39

diagram: unit elasticty(PED of 1)

Answer 39