Demand

Question 1

What is demand?

Answer 1

Demand is the quantity of goods or services consumers are willing and able to buy at a given price in a given time.

Question 2

What is the law of demand?

Answer 2

The law of demand is that theres an inverse relation between price and quantity demanded if we assume ceteris paribus.

Question 3

Why is the demand curve downward sloping?

Answer 3

Income effect: as prices go up, incomes dont stretch as far

Substitute effect: as prices go up, other goods become more price competitive so consumers switch their demand

Question 4

What are some none price factors that can affect demand?

Answer 4

Populations
Ads
Substitute price
Income
Fashion
Interest rates
Complement prices

Question 5

How can PED help make decisions for businesses in terms of prices?

Answer 5

If demand is price elastic, changes in price will do the inverse to total revenue. EG: increase prices = decrease TR

If demand is price inelastic, changes in price will do the same to total revenue. EG: increase prices = increase TR