2.1 demand (sl)

Question 1

Define demand

Answer 1

Quantity of a good/service consumers are willing and able to buy at a given price over a period of time

Question 2

Define normal good

Answer 2

Good/service for which demand increases as Y rises (D curve moves right)

Question 3

Define inferior good

Answer 3

Good/service which demand decreases as Y rises (D curve moves left)

Question 4

Define substitutes

Answer 4

Products which are seen as alternatives from the consumers point of view e.g. tea v.s. coffee

Question 5

Define complements

Answer 5

Products which are consumed jointly e.g. coffee + milk

Question 6

State the Law of Demand

Answer 6

As the price of a good increases, quantity demanded decreases, and vice-versa

Question 7

What is the Ceteris Paribus principle?

Answer 7

Latin term -> “everything else is equal”, used to isolate the relationship between two variables which every other factor is CONSTANT

Question 8

State the Law of Diminishing Marginal Utility

Answer 8

The more of a good consumed, the additional satisfaction (marginal utility) gained from each extra unit decreases

Question 9

Define Income Effect

Answer 9

A change in the price of a good affects the purchasing power of customers, ASSUMING their income remains constant

Question 10

Define Substitution Effect

Answer 10

When a change of price of a good leads consumers to substitute it with another good of a similar purpose

Question 11

List 4 factors which affect demand

Answer 11

1. Consumer income
2. Tastes and preferences
3. Prices of related goods
4. Expectations

Question 12

What is the PPC curve? (Production Possibilities Curve)

Answer 12

A curve to show the maximum possible output combinations of 2 goods or services that an economy could produce given its available resources and technology

Question 13

List the 4 basic assumptions of the PPC curve

Answer 13

1. Fixed resources
2. Fixed technology
3. Two goods - which the economy produces
4. Full employment and efficiency

Question 14

Market demand

Answer 14

Sum of all individual consumer demand

Question 15

Corporate social responsibility

Answer 15

Refers to business activities involving ethical + environmental factors which may be beneficial for internal + external stakeholders

Question 16

market share

Answer 16

firms % of an industry’s total sales revenue

Question 17

market share EQUATION

Answer 17

individual firms sales renevue/ industry sales revenue

Question 18

how can we measure growth of an industry?

Answer 18

• number of employees
• market share
• value of assets
• revenue
• profit

Question 19

what does the demand curve help us show?

Answer 19

helps businesses and policymakers predict how changes in price might affect consumer purchasing decisions

Question 20

state the law of demand

Answer 20

all else being equal, as the price of a good or service decreases, the quantity demanded increases, and vice-versa

Question 21

substitution effect

Answer 21

When the price of a good decreases, it becomes relatively cheaper compared to other goods, leading consumers to substitute it for more expensive alternatives. e.g. pepsi becoming cheaper, compared to coke

Question 22

income effect

Answer 22

A lower price increases purchasing power of consumers, allowing them to buy more of the good with the same income. e.g. coke

Question 23

diminishing marginal utility

Answer 23

As consumers acquire more of a good, the additional satisfaction (utility) they gain from each extra unit decreases, so they are only willing to buy more at lower prices.

Question 24

giffen goods

Answer 24

Inferior goods for which an increase in price leads to an increase in quantity demanded due to the strong income effect outweighing the substitution effect.

Question 25

demand curve axis

Answer 25

Y AXIS: Price X axis: Quantity

Question 26

law of demand

Answer 26

The inverse relationship between price and quantity demanded, where quantity demanded increases as price decreases, and vice versa, ceteris paribus

Question 27

What causes a movement along the demand curve?

Answer 27

a change in the price of a good

Question 28

individual demand

Answer 28

the quantity of a good or service that a single consumer is willing and able to purchase at various prices over a specific time period. This concept helps us understand consumer behaviour at a personal level

Question 29

relationship - demand

Answer 29

as price decreases, demand increases as demand increases, price decreases

Question 30

what causes a right shift? (increase in demand)

Answer 30

- increase in consumer income - increase in substitute goods - increase in tastes + preferences/ popularity of product - future expectations of price

Question 31

what causes a left shift? (decrease in demand)

Answer 31

- decrease in consumer income - increase in price of complements - decline in popularity - future expectations

Question 32

define structural unemployment

Answer 32

Structural unemployment happens when there is a mismatch between workers skills and available jobs