Chapter 7: Demand

Question 1

Demand factors

Answer 1

• Change in income
• Changes in the price of related products
• Advertising campaigns
• Changes in population structure
• Changes in taste and fashion
• Change in weather
• Expectation about future prices
• Special events

Question 2

Supply factors

Answer 2

• Changes in cost of production
• Improvements in technology
• Taxes
• Subsidies
• Weather conditions and health of livestock and crops
• Prices of otehr products
• Disasters and wars
• Discoveries and depletion

Question 3

Determinants of PED

Answer 3

• Avalability of substitutes
• Proportion of income spent on the product
• Necessity or a luxury
• Addictive or not
• Whether its purchase can be postponed
• How the market defined (more narrow = more elastic) - eg. demand for one brand of tea is more elastic than demand for tea in general
• Time period (short term - consumers will not have sufficient time to notice the change in price)

Question 4

Changes in PED

Answer 4

• Higher price = more elastic
• Lower price = less elastic

Question 5

Determinants of PES

Answer 5

• Time taken to produce/cost of altering its supply
• Feasibility of storing it
• Supply more elastic as time period increases - producers have more time to adjust supply
• Advances in technology make supply more elastic