Topic 1.2: Price determination in a competitive market

Question 1

What is demand?

Answer 1

quantity of good or services that consumers are willing and able to buy at any given price point at any period of time

Question 2

What does the law of diminishing marginal utility state?

Answer 2

This law states that as an extra unit of good is consumed, the marginal utility i.e. benefit derived from consuming the good, falls.
Eventually utility derived will = 0

Question 3

What factors makes demand curve shift? (PIRATEs)

Answer 3

Population: as it increases so does demand, however age also plays into this factor

Income; as this increases more people spend their disposable income and demand increases

Related goods: complimentary goods and substitute goods fluctuates demand. If a substitute of good a price drops, the demand for good a decreases vice versa. If the price of a compliment to good a increases, demand will fall for good a.

Advertising: more loyal customers leads to a higher demand

Taste: change in taste can increase or decrease demand

Expectations

Seasons: demand changes according to seasons.