Demand

Question 1

State the Law of Demand:

Answer 1

Price and quantity demanded have an inverse relationship

Question 2

State the 2 reasons of the inverse relationship of Demand:

Answer 2

1. Income Effect –> Price falls, Real Income rises. Consumers are able to buy more with their income.
2. Substitution Effect –> Price falls, goods/services become more attractive to buy compared to substitute/replacement

Question 3

Definition of Effective Demand

Answer 3

The willingness and ability for consumers to buy a good/service

Question 4

Change in quantity demanded:

Answer 4

• Movement along the curve
• Caused by a change in price

Question 5

Change in Demand

Answer 5

• A shift of the demand curve
• Caused by a change in a non price factor

Question 6

Non-price factors of demand (7):

Answer 6

1. Popularity
2. Disposable Income
3. Age distribution
4. Substitute goods
5. Complementary goods
6. Weather
7. Advertisements

Question 7

Definition of Substitute goods:

Answer 7

Goods that can replace each other

Question 8

Definition of Complementary goods:

Answer 8

Goods that are usually bought together

Question 9

Definition of Inferior goods:

Answer 9

Goods/services bought by low-income households. As income rises, demand for it falls.

Question 10

Definition of Normal goods:

Answer 10

Goods/services bought more as income rises

Question 11

Definition of Veblen goods:

Answer 11

Status good which are bought more as price rises. High price reflects higher social status.

Question 12

Definition of intermediate good:

Answer 12

Good that is required to produce another good (usually a raw material). When one good is in demand another good is needed to produce that good.

Question 13

Definition of Joint demand:

Answer 13

The demand for complementary goods.

Question 14

Extenstion in demand

Answer 14

an increase in the quantity demanded for a product caused by a fall in its price

Question 15

Contraction in demand

Answer 15

a decrease in the quantity demanded for a product caused by a rise in its price