2.2 Demand 1

• What is demand in economics?

  The quantity that buyers are willing and able to buy at a given price in a given period of time.
• Who determines demand in a market?

  Demand is determined by buyers in a market.
• How is demand defined in a consumer goods market?

  Demand is the quantity of a good/service consumers are willing and able to buy at a given price over a given period of time.
• What does demand refer to in a labor market?

  Demand is the quantity of workers that firms are willing and able to hire at a given price (wage) over a given period of time.
• What is demand in the foreign currency market?

  Demand is the quantity buyers of the currency are willing and able to buy at a given price over a given period of time.
• What is effective demand?

  A buyer must be willing and able to buy at a given price to be considered as part of effective demand.
• How does effective demand differ from mere desire or need?

  To an economist, demand is not the same as desire, need, or want; buyers must be willing and able to buy.
• What is individual demand?

  Individual demand is the demand of one buyer.
• What is market demand?

  Market demand is the total demand of all buyers in the market.
• In a labor market, what does market demand for workers represent?

  Market demand for workers is the total demand by firms as employers of the workers in the market.
• Who are the buyers in a commodity market?

  The buyers are usually firms, as firms use commodities in production.
• In the foreign currency market, who are the buyers?

  The buyers are holders of USD buying EUR.
• What does the law of demand state?

  The quantity demanded will usually increase as price falls, and decrease as price rises, ceteris paribus.
• What is the relationship between price and quantity demanded according to the law of demand?

  There is usually an inverse relationship between price and quantity demanded.
• What does 'ceteris paribus' mean in the context of demand?

  'Ceteris paribus' means all other influences affecting demand remain unchanged.
• How can the expected theoretical relationship between price and quantity demanded be illustrated?

  The expected theoretical relationship can be illustrated with a demand curve.
• What does the demand curve show?

  The demand curve shows the quantity that buyers are willing and able to buy at any given price in a given period of time.
• How does the demand curve typically slope?

  The demand curve slopes downwards from left to right.
• What are Veblen goods and Giffen goods in relation to demand?

  They are unusual cases where price and quantity demanded may be positively related.
• What is a demand function?

  A demand function is an equation showing the mathematical relationship between the quantity demanded of a good and the various determinants of demand.
• What factors can affect the quantity demanded according to the demand function?

  Factors include price of the product, income of buyers, price of substitutes, price of complements, tastes and preferences, and expectations of buyers.
• What does a demand schedule represent?

  A demand schedule is a table showing the different total quantities of a good/service that buyers are willing and able to buy at a range of prices over a given period of time.
• How can a demand curve be drawn from a demand schedule?

  A demand curve can be drawn to illustrate the inverse relationship between price and quantity demanded while all other factors remain the same.
• Explain the relationship between the price of vegetable oil and the quantity demanded.

  • As price decreases, quantity demanded increases (extension of demand).
  • As price increases, quantity demanded decreases (contraction of demand).
  • Illustrated with a demand curve showing the inverse relationship.
• What is the expected behavior of price elasticity of demand (PED)?

  PED is almost always negative due to the inverse relationship between price and quantity demanded.
• What occurs during a contraction of demand?

  A contraction of demand occurs when there is a fall in quantity demanded due to an increase in the price of the product, ceteris paribus.
• How is a contraction of demand represented on a demand curve?

  A contraction of demand is shown by a movement along the demand curve to the left, to a lower quantity demanded.
• What occurs during an extension of demand?

  An extension of demand occurs when there is an increase in quantity demanded due to a fall in the price of the product, ceteris paribus.
• How is an extension of demand represented on a demand curve?

  An extension of demand is shown by a movement along the demand curve to the right, to a higher quantity demanded.
• How does a rise in price affect buyers according to the income effect?

  A rise in price leads to buyers becoming worse off, likely resulting in a contraction in demand.
• What is the income effect in relation to demand?

  The income effect is the change in quantity demanded arising from buyers becoming better or worse off due to a change in price.
• How does a fall in price affect buyers according to the income effect?

  A fall in price leads to buyers becoming better off, likely resulting in an extension in demand.
• What is the substitution effect in relation to demand?

  The substitution effect is the change in quantity demanded arising from consumers switching to or from alternative products due to a change in price.
• How does a rise in price affect consumer behavior according to the substitution effect?

  A rise in price leads consumers to switch to buying alternative products, likely resulting in a contraction in demand.
• How does a fall in price affect consumer behavior according to the substitution effect?

  A fall in price leads consumers to switch to buying the product from alternatives, likely resulting in an extension in demand.
• What do consumers seek to maximize when making buying decisions?

  Consumers seek to maximize utility.
• What happens to marginal utility per £ spent as the price of a good/service increases?

  The marginal utility per £ spent will fall as the price increases.
• How does diminishing marginal utility relate to the demand curve?

  Diminishing marginal utility is reflected in a downward sloping demand curve, as quantity demanded falls when price increases.