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 demand curve


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


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


  When the price changes leading to a movement up or down the existing demand curve
• What are shifts in the demand curve caused by?

  Non-price factors
• What is a movement along the demand curve caused by?

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


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


  Expansion in demand
• What causes a shift in the demand curve?


  • Increase in income
  • Increase in marketing
  • Change in fashion
• How does an increase in income shift the demand curve?

  Consumers can buy more products at every price
• How does an increase in marketing shift the demand curve?

  Convinces consumers to demand more products at every price
• How does an change in fashion shift the demand curve?

  If people prefer phones to ipads, demand for phones 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 and profits decrease
  • May need fewer workers
• What effect does an expansion in demand have on consumers?


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


  • Increase supply and profit
  • Employ more workers
• Define price elasticity of demand


  The responsiveness of quantity demanded to a change in the price of a 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
• Why is price elasticity of demand important for consumers?

  • If the product they buy has inelastic demand then they are likely to face price rises as producers can easily pass on cost increases
  • If the product they buy has inelastic demand then the government can impose high taxes, raising prices
  • Allows consumers to make choices if substitutes are available
  • Consumer PED may depend on weather/time of the year
• Why is price elasticity of demand important for producers?

  • Allows producers to maximise their total revenue
  • Can affect their decision whether to supply the product or not
• What happens to price and quantity if demand shifts to the right (outward)?

  Price and quantity increases
• What happens to price and quantity if demand shifts to the left (inward)?

  Price and quantity decreases