Determinants of Demand and Supply

Question 1

what is the basic economic problem

Answer 1

infinite wants but finite resources

Question 2

what is derived demand

Answer 2

when the demand for a product is driven by the demand for another product
e.g. the demand for steel is derived from the demand for cars so to match rising demand of cars more virgin steel needs to be produced

Question 3

what is a normal good

Answer 3

Most goods are normal good - so when prices fall, ceteris paribus demand will fall

Question 4

what is inferior goods

Answer 4

inferior goods is where demand decreases, when income increases - e.g. decrease in demand for bread because more people buying expensive meat

Question 5

what are substitute products

Answer 5

A substitute product as an alternative so creating competition - e.g. if price of beef increases, ceteris paribus demand will fall because more people are purchasing lamb instead because it cheaper

Question 6

what are complementary goods

Answer 6

Complementary products are goods bought with a product - e.g. if price of fish increases, ceteris paribus this will decrease the demand for chips

Question 7

what are veblen goods

Answer 7

Veblen good - An increase in the cost of goods (such as Dior handbags) leads to an increase in demand - due the high status appeal because more people want to by them due to advertising

Question 8

what is a giffen good

Answer 8

Giffen good - When prices rise, cheap staple goods are consumed in greater quantity (e.g.) chicken this could be due to other factors such as food shortages causing competitive substitutes like pork to run out so people stockpile on cheap food so they don’t run out of resources and starve

Question 9

what is indirect taxes

Answer 9

taxes charged on goods and services paid by the consumer e.g. VAT