2.2 demand

• What is meant by demand?

  Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time.
• What is required for there to be effective demand?

  Effective demand requires someone to want to purchase the product and have the money to do so.
• What is derived demand?

  Derived demand occurs when the demand for one product is influenced by the demand for another product.
• Give an example of derived demand.

  An example of derived demand is the demand for transport, which is influenced by the demand to commute to work.
• How does quantity demanded relate to price?

  For most goods and services, the quantity demanded varies inversely with the price.
• What happens to quantity demanded as price rises?

  As the price rises, the quantity demanded falls.
• What happens to quantity demanded as price falls?

  As the price falls, the quantity demanded rises.
• What does the law of demand state?

  The law of demand states that for most products, the quantity demanded varies inversely with its price.
• What does an individual demand curve represent?

  An individual demand curve shows how many units of a good or service an individual consumer is prepared to buy at different prices.
• How is market demand calculated?

  Market demand is calculated by adding together all the individual demands for a good or service.
• What is the difference between movements along the demand curve and shifts of the demand curve?

  • Movements along the demand curve occur due to changes in price.
  • Shifts of the demand curve occur due to non-price factors affecting demand.
• What causes a movement along the demand curve?

  A movement along the demand curve is caused solely by a change in price.
• What causes a shift in the demand curve?

  A shift in the demand curve occurs when the quantity of a good demanded changes even though the price remains the same.
• What are some factors that can cause shifts in the demand curve?

  1. Income
  2. Marketing
  3. Tastes and fashions
  4. Substitutes and complements
  5. Population
  6. Government policies
  7. Economic situation
  8. Price expectations
• How does an increase in income affect demand?

  As income rises, consumers can afford to buy more goods and services at every price.
• How does marketing influence demand?

  Marketing is designed to increase the demand for a product, such as through advertising.
• How do tastes and fashions affect demand?

  As consumer tastes change, they may prefer to buy different or more advanced products, increasing demand for those products.
• What are substitutes in terms of demand?

  Substitutes are goods and services that can be used in place of another good or service.
• What are complements in terms of demand?

  Complements are goods and services that go together, such as shampoo and conditioner.
• How does population affect demand?

  If the population increases or decreases, the demand for most goods and services will also increase or decrease.
• How do government policies affect demand?

  Government can affect demand by imposing taxes or giving subsidies.
• What is the effect of taxes on demand?

  Taxes take money out of firms’ and individuals’ pockets, which can reduce demand.
• What is the effect of subsidies on demand?

  Subsidies put money into firms and individuals, which can increase demand.
• How does the economic situation affect demand?

  The state of the economy can affect demand; for example, during a financial crisis, demand for many goods may fall.
• How do price expectations influence demand?

  If people expect prices to rise, they are likely to demand more of the product now.
• What is the consequence of a shift in the demand curve?

  A shift in the demand curve typically leads to both price and quantity moving in the same direction.
• What happens if demand increases?

  If demand increases, both the price and quantity will rise.
• What happens if demand decreases?

  If demand decreases, both the price and quantity will fall.
• What is the effect of a price rise on quantity demanded?

  If the price rises, the quantity demanded falls.
• What is the effect of a price fall on quantity demanded?

  If the price falls, the quantity demanded rises.
• What are the consequences of movements along the demand curve for consumers?

  • A movement up the demand curve means consumers can buy fewer goods, reducing their standard of living.
  • A movement down the demand curve allows consumers to buy more goods, improving their standard of living.
• What are the consequences of movements along the demand curve for producers?

  • Rising prices and falling demand can lower sales and profits, leading to reduced output or layoffs.
  • A move down the demand curve may increase market share and profits.
• What is the summary of changes in demand?

  • Increase in demand: rightward shift of the demand curve.
  • Decrease in demand: leftward shift of the demand curve.
  • Increase in quantity demanded: fall in price, movement down the demand curve.
  • Decrease in quantity demanded: rise in price, movement up the demand curve.
• How do you draw shifts in, and movements along, the demand curve?

  • Shifts in the demand curve: whole curve moves right (outward) or left (inward) due to non-price factors.
  • Movements along the demand curve: movement up (contraction) or down (expansion) the same demand curve due to price changes.
• What is the relationship between price and quantity demanded according to the law of demand?

  The law of demand states that price and quantity demanded move in opposite directions.
• What is the significance of price elasticity of demand?

  Price elasticity of demand measures how much the quantity demanded of a good responds to a change in price.
• Why is price elasticity of demand important for consumers and producers?

  Price elasticity of demand is important because it helps consumers and producers understand how changes in price will affect demand.
• What does a movement up the demand curve indicate?

  It indicates an increase in price and quantity demanded.
• What happens to both price and quantity demanded when demand increases?

  Both the price and quantity demanded of the product increase.
• What occurs when there is a contraction of demand?

  The price rises, but the quantity falls.