6.0 - demand

Question 1

name the various factors of market demand

6.1 - factors of market demand

Answer 1

• price of G&S
• price of other G&S (complementary and substitute)
• expected future price
• change in consumer preference
• income level
• population

Question 2

explain the forms of external influences on consumer choice from other other consumers

6.1 - factors of market demand

Answer 2

• bandwagon effect - positive network externality
• snob effect - negative network externality, lower demand overall, higher demand for fewer

Question 3

describe the ceteris paribus assumption

6.1 - factors of market demand

Answer 3

analysing/isolating a specific economic factors while all others are equal or unchanged

Question 4

define the ‘demand schedule’

6.2 - movements along the demand curve

Answer 4

displays the quantity of a G/S demanded at a range of prices at a given poitn in time

Question 5

law of demand

6.2 - movements along the demand curve

Answer 5

quantity demanded falls as price rises

Question 6

describe the positive and negative shifts of the demand curve

6.3 - shifts in the demnad curve

Answer 6

• ’+’ consumers willing and able to buy in higher quantity at a higher price
• ’-‘ consumers willing and able to but in less quantity at a lower price

Question 7

define price elasticity

6.4 - price elasticity of demand

Answer 7

measures the responsiveness of quantity demanded to change in price (the % change in quantity froma 1%+ in price)

Question 8

importance of price elasticity for businesses and governments

6.4 - price elasticity of demand

Answer 8

businesses
- decisions on optimal pricing
- engaging in market research to find consumer preference and price elasticity of product

governments
- pricing community G&S
- predict the effects of changes in indirect taxes (excise duty and levies)

Question 9

explain the methodology of measuring price elasticity

6.4 - price elasticity of demand

Answer 9

total outlay method
- observe the change of price on total revenue of producer
- comparing price by the price x quantity
⬆️price ⬆️revenue = inelastic
⬆️price ⬇️revenue = elastic
⬆️price 🟰revenue = unit elastic

Question 10

describe the 2 extremes of price elasticity

6.4 - price elasticity of demand

Answer 10

• perfectly elastic demand (unlimited demand for a single price)
• perfectly inelastic demand (willing to pay any price for a given quantity) (require gov. regulation to avoid consumer exploitation)

Question 11

outline the factors that affect demand elasticity

6.5 - factors affecting demand elasticity

Answer 11

• luxuary vs nessecity (nessecities are less elastic )
• presence of close substitutes (more substitues = more elastic)
• price (cheaper G&S less elastic)
• length of time subsequent to price change
• wether a good is addictive (inelastic demand for addictive G&S)