Demand

Question 1

What is demand?

Answer 1

The human wish to obtain goods and services

Question 2

What is effective demand?

Answer 2

Willingness to buy along with the ability to pay

Question 3

What is consumer sovereignty?

Answer 3

This is the idea that because businesses want to supply things we are willing to pay for, consumers ultimately decide what will be produced and how resources will be used. Market forces, which involve demand interacting with supply, leads to an allocation of resources that gives us the best selection of goods and services obtainable from existing resources

Question 4

State the limitations to the idea of consumer sovereignty

Answer 4

• depends on whether markets are competitive
• if advertising creates desire for a product, it indicates that the power actually lies with businesses

Question 5

State and describe the 7 determinants of demand

Answer 5

• tastes - involve consumer preferences for specific products. These are likely to change over time and be influenced by factors such as fashion
• advertising and branding - ways businesses try to increase demand for their products
• Substitutes - alternatives to the product
• complementary goods - tend to be used together
• Income - flow of money received by an individual or household over time. Often a reward for economic activity
• Population - group of people fitting a particular description
• price - the amount paid by the buyer to the seller in the transactions. Usually set by market forces but can be regulated by governments
• expectations - if speculators expect the value of something to increase, prices will rise
• seasons - for example, demand for ice cream will increase in the summer

Question 6

The relationship between price and quantity demanded is what?

Answer 6

Inverse

Question 7

What is a demand schedule?

Answer 7

A table showing the quantities demanded at different price levels

Question 8

What is a demand curve?

Answer 8

A graphical representation of the relationship between the quantity demanded and price, for a product in the market

Question 9

What movement will a rise in price cause on the demand curve and what is this called?

Answer 9

Up and to the left. It is called a contraction of demand

Question 10

What movement does a fall in proces cause on the demand curve and what is this called?

Answer 10

Down and to the right. It is called an extension of demand

Question 11

What is a shift in the demand curve?

Answer 11

This occurs when the quantity demanded changes for reasons other than price

Question 12

What does it mean for a market to be in equilibrium?

Answer 12

Equilibrium price is the point at which supply meets demand. At market equilibrium, the price has no tendency to change, and it is known as the market clearing price

Question 13

What will happen if prices are below the market equilibrium?

Answer 13

There will be an excess of supply and a shortage of demand

Question 14

What happens if prices are above the market clearing price?

Answer 14

There will be an excess of supply and a shortage of demand

Question 15

What happens when supply or demand curves shift?

Answer 15

A new equilibrium will be reached