2.2 Demand

• What is demand in economics?

  The willingness and ability to purchase
• What is the difference between being willing and able to purchase?

  Willingness is desire; ability is financial capacity
• If someone desires to fly first class but lacks funds, what does this illustrate?

  They are willing but not able to purchase
• What does the Law of Demand state?

  Quantity demanded varies inversely with price
• How does price affect quantity demanded according to the Law of Demand?

  As price rises, quantity demanded falls
• How do you construct an individual demand curve?

  • Collect data on quantity demanded and price
  • Plot the data points on a graph
  • Connect the points to form the demand curve
• What is individual demand?

  • Demand for a good/service by one consumer
• What is market demand?

  Total demand from all individual consumers
• What causes shifts in the demand curve?

  • Income changes
  • Marketing influences
  • Tastes and fashion
  • Availability of substitutes
  • Complements in demand
  • Population changes
  • Government policies
  • Economic situation
• What happens to the demand curve when consumer incomes increase?

  The demand curve shifts outward to the right
• What is the effect of a rise in demand for one good on its complement?

  Demand for the complement increases
• What is a movement along the demand curve?

  Change in quantity demanded due to price change
• What occurs if the price falls from £10 to £4?

  Quantity demanded increases from 0 to 6 units
• What is the consequence of a demand curve shift?

  Price and quantity move in the same direction
• What happens to demand for substitutes when their price increases?

  Demand for substitutes will increase
• What is the effect of a price increase on quantity demanded?

  Quantity demanded will fall
• What does a movement up the demand curve indicate for consumers?

  They can buy fewer goods/services
• What does a movement up the demand curve indicate for producers?

  Demand and profits will fall