Demand

Question 1

What is the definition of demand

Answer 1

The quantity of a product that consumers are willing and able to buy in a period of time

Question 2

What is the relationship between price and demand, how is this shown on a market diagram

Answer 2

Inverse relationship
A change in price causes movement along the demand curve

Question 3

what are 5 factors that cause a shift in demand

Answer 3

• Change in income
• Change in price of a substitute good
• Change in price of a complementary good
• Changes in tastes and preferences
• Changes in age and size of population

Question 4

What is consumer surplus and how is it shown on a market diagram

Answer 4

• The difference between the price the consumer would be willing to pay and the actual price
• Area between the equilibrium price and demand curve

Question 5

What is an assumption made in market diagrams and many other economic diagrams

Answer 5

Ceteris paribus - (with all other conditions remaining the same)

Question 6

Explain the income and substitution effects

Answer 6

• Income effect is that as incomes rise, demand increases (exception is inferior goods)
• Substitution effect is that if the price of a good decreases, people move away from substitutes towards the lower priced good

Question 7

Explain the law of diminishing marginal utility

Answer 7

More units consumed = less utility gained per unit but more total utility

Question 8

Describe what Giffen goods are

Answer 8

Good that as price increases demand increases
This is because they are inferior goods and have no substitutes so as people get poorer they buy more

Eg bread