2.2 Demand

• Define demand


  The willingness and ability to purchase a good or service at the given price in a given time period
• What way does the demand curve slope?


  Downwards
• Define individual demand


  The demand for a good or service by an individual consumer
• Define market demand


  The total demand for a good or service found by adding together all individual demand
• Define demand curve


  A graph showing how the demand for a product varies with changes in its price
• Define shift of the demand curve


  A complete movement of the existing demand curve either outward (to the right) or inward (to the left)
• Define movement along the demand curve


  When the price changes, due to a change in supply, leading to a movement up or down the existing demand curve
• What causes shifts of the demand curve?


  Non-price factors
• What causes a movement along the demand curve?


  Change in price
• What is a movement up the demand curve called?


  Contraction in demand
• What is a movement down the demand curve called?


  Expansion in demand
• What can cause shifts of the demand curve?

  • Increase in income
  • Increase in marketing
  • Change in taste/ fashion
  • Preference for a substitute
  • Complementary goods
  • Expectation of a rise in price
  • Population changes
  • Government policies
• What happens to price when the demand curve shifts to the right?


  Price increases
• What happens to quantity when the demand curve shifts to the right?


  Quantity increases
• What happens to price when the demand curve shifts to the left?


  Price decreases
• What happens to quantity when the demand curve shifts to the left?


  Quantity decreases
• If there is a contraction in demand, what happens to price?


  Increases
• If there is a contraction in demand, what happens to quantity?


  Decreases
• If there is an expansion in demand, what happens to price?


  Decreases
• If there is a expansion in demand, what happens to price?


  Increases
• What effect does a contraction in demand have on consumers?


  • Buy fewer goods
  • Buy cheaper substitutes
• What effect does a contraction in demand have on producers?


  • Sales/ profits decreases
  • May need fewer workers
• What effect does an expansion in demand have on consumers?


  • Buy more and better goods
• What effect does a expansion in demand have on producers?


  • Increase supply/ profits
  • Employ more workers
• Define price elasticity of demand


  The responsiveness of quantity demanded to a change in the price of the product
• Define elastic demand


  When the percentage change in quantity demanded is greater than the percentage change in price
• Define inelastic demand


  When the percentage change in quantity demanded is less than the percentage change in price
• Evaluate the importance of price elasticity of demand for consumers


  • If the product they buy has inelastic demand then they are likely to face price rises as supplies can easily pass on cost increases
  • If the product they buy has inelastic demand then the government can impose high taxes, raising prices
  • Allows them to make choices if substitutes are available
• Evaluate the importance of price elasticity of demand for producers


  • Allows producers to maximise their total revenue
  • Can charge different prices to different groups of people for the same product
  • Can affect their decision whether to supply the product or not