1.2.2 Demand

Question 1

What is demand?

Answer 1

Demand is the ability and willingness to buy a particular good at a given price and at a given moment in time.

Question 2

A movement along the demand curve, for example from A to B, is caused by a…..

Answer 2

change in the price of the good

Question 3

A shift of the demand curve, for example D1 to D2,
is caused by a ….

Answer 3

change in any of the factors which affect demand, the conditions of demand.

Question 4

A movement from A to B is a ______ in demand

Answer 4

contraction, the quantity demanded falls because of an increase in price.

Question 5

A movement from A to C is an ___ in demand.

Answer 5

extension, the quantity demanded rises due to a decrease in price.

Question 6

Movements along the demand curve are not called increases or decreases- this only occurs when ….

Answer 6

the curve shifts

Question 7

A shift from D1 to D2 is a ______ in demand

Answer 7

decrease, because fewer goods are demanded
at each and every price. For example, at price P only Q2 goods are demanded rather than Q1 goods.

Question 8

A shift from D1 to D3 is an ______ in demand.

Answer 8

Increase in demand, as more goods are demanded at each and every price. Now, Q3 goods are demanded at price P.

Question 9

What are the conidtions for demand?

Answer 9

mnemonic PIRATES + Love:
1. Population
2. Income
3. Related goods
4. Advertising
5. Taste/fasion
6. Expectations
7. Seasons
8. Legislation (love)

Question 10

How would population effect demand?

Answer 10

If population rises, we would expect demand for all products to increase and so the demand curve will shift to the right. This is because the more people there
are in the country, the more people who will want a good.

Question 11

How would income effect demand?

Answer 11

For most goods, if income increases, demand increases because a person can afford to buy more of the product. If there is a fall in income then the demand would decrease and shift to the left. However this is dependant on PED..
Normal goods : Demand increases with rising income (e.g., luxury cars).
Inferior goods : Demand increases with falling income (e.g., generic brands).

Question 12

How might related goods effect demand?

Answer 12

If goods are complements or substitutes of each other then a change in the price of another good can cause a shift in the demand curve.
Substitute goods : An increase in the price of one good increases the demand for its substitute (e.g., Coke and Pepsi) as you either buy one good or the other, for example you either buy a pair of Nike trainers or a pair of Adidas trainers.
Complementary goods : A decrease in the price of one good increases the demand for its complementary good (e.g., peanut butter and jelly). If you have one, you need the other to go with it.
- This is linked to the concept of cross elasticity of demand.

Question 13

How would advertising effect demand?

Answer 13

If a firm carries out a successful advertising campaign, demand is likely to increase. If a competitor firm carries out a successful advertising campaign, demand for the first firm will fall. A successful advertising campaign by Tesco will increase demand for Tesco but reduce demand for Asda.

Question 14

How might taste/fasion impact demand?

Answer 14

If something becomes more fashionable, we expect demand to increase and if it becomes less fashionable, then demand will fall.

Question 15

How migh expectation effect demand?

Answer 15

Expectations of what might happen in the future can have a big impact on the level of demand for some goods. If people expect a shortage of something, or that price will rise in the future, then demand for that product will
increase. If people expect that price will fall in the future, demand will decrease.

Question 16

How might seasons effect demand?

Answer 16

Some products will find their demand affected by the weather. For example, hot summers cause an increase in demand for sun cream whilst wet summers cause a decrease in demand for umbrellas.

Question 17

How can legislation effect demand?

Answer 17

Demand for car seats increased after the government made it a legal requirement that young children have to sit in them.

Question 18

The demand curve slopes downward, showing the _____ relationship between price and quantity. This can be explained by the _____ ___ ______ ____ ____.

Answer 18

inverse, law of diminishing marginal utility

Question 19

What is marginal utility

Answer 19

The change in satisfaction resulting from the consumption of the next unit of a good e.g. the increased satisfaction by eating another bite of chocolate.

Question 20

What is total utility?

Answer 20

Represents the satisfaction gained by a customer as a result of their overall consumption of a good e.g. the satisfaction of eating the whole bar of chocolate.

Question 21

What is the Law of Diminishing Marginal Utility ?

Answer 21

The satisfaction derived from the consumption of an additional unit of a good will decrease as more of a
good is consumed , assuming the consumption of all other goods remains constant.

Question 22

Explain why the demad curve is downwards sloping?

Answer 22

If more of a good is consumed, there is less satisfaction derived from the good. This means that consumers are less willing to pay high prices at high quantities since they are gaining less satisfaction, due to diminishing marginal utility.

Question 23

Other than diminishing marginal utility why else is the demand curve downwards sloping?

Answer 23

-In order to maximise their satisfaction with their income, consumers need to spend their money so that the level of satisfaction gained per penny is as great as possible.
-As a result, they should spend their income so that the marginal utility gained from a good divided by the price is the same for each good i.e. MU,/P,= MU,/P,= MU/P_
-Therefore, the curve is downsloping because if prices rise,the marginal utility per penny falls and so consumers will buy less of that good.

Marginal utility/ price

Question 24

What is derived demand?

Answer 24

This is when the demand for one good is linked to the demand for a related good. For example, the demand for bricks is derived from the demand for the building of new houses. The demand for labour is derived from the goods the labour produces. For example, if the demand for cars increases, the demand for the labour to produce those cars will increase.

Question 25

What is Composite demand?

Answer 25

This is when the good demanded has more than one use. An example could be milk. Assuming there is a fixed supply of milk, an increase in the demand for cheese will mean that more cheese is supplied, and therefore less butter can be supplied.

Question 26

What is Joint demand

Answer 26

This is when goods are bought together, such as a camera and a memory card.