Demand

Question 1

What is demand?

Answer 1

It is the want backed by the ability and willingness to purchase a commodity at a particular market price

Question 2

What are the kinds of demand. Explain.

Answer 2

1. Price demand: Different quantities demanded at different price
2. Income demand
3. Cross demand - relationship between price of related goods (substitute and complementary goods) and demand
4. Joint demand
5. Composite demand: Demand for commodity that can be put into multiple uses
6. Direct and 7. Derived demand (when demand of one commodity depends on another)

Question 3

Assumptions for law of demand?

Answer 3

All other factors of demand except price are constant. Ceteris paribus

Question 4

Law of demand

Answer 4

Negative or inverse relationship between price and quantity demanded of a commodity assuming all other factors are constant (ceteris paribus)

Question 5

Effective demand

Answer 5

Desire backed by ability and willingness to purchase a commodity.

Question 6

Notional demand

Answer 6

It is the mere desire to have a product

Question 7

Demand curve and its slope

Answer 7

Demand curve is -ve sloped, downwards from left to right.

Question 8

Exceptions to law of demand

Answer 8

1. Giffen Goods:
   Giffen goods are inferior goods that people consume more of when the price increases. This happens because when the price of a Giffen good rises, consumers, often those on a tight budget, are forced to cut back on other, more expensive goods, leaving them with only the Giffen good as a viable option.
   Examples of Giffen goods are often staple foods that are very cheap and form a large part of a consumer’s budget, like potatoes or bread in some regions.
2. Veblen Goods:
   Veblen goods, also known as luxury goods or conspicuous consumption goods, are items whose demand increases with price. This is because higher prices signal a higher status or quality to the consumer, making them more desirable.
   Examples of Veblen goods include luxury cars, designer clothes, expensive wines, and high-end jewelry.

Question 9

Causes of Negative relation between price of good and quantity demanded OR why does demand curve slow downwards to left

Answer 9

1. Law of DMU: As a consumer consumes more units of a commodity, he receives less utility and therefore is willing to pay lesser for it
2. Income effect: As price decreases, purchasing power or real income increases and vice versa
3. Substitution effect
4. Size of consumer group or market size
5. Alternative use of commodity