Economics - unit 2 - demand

Amardeep Kumar
Flashcards by Amardeep Kumar, updated more than 1 year ago More Less
Amardeep Kumar
Created by Amardeep Kumar almost 5 years ago


A levels Economics (Module 1: Markets and Market Failure) Flashcards on Economics - unit 2 - demand, created by Amardeep Kumar on 12/28/2014.

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Question Answer
What is meant by a market? A market is a place where buyers and sellers come together to buy and sell (exchange) goods or services. For example, a retail market like Tesco, a second hand market such as eBay or a stock market.
A market requires which 2 individuals? •A consumer - the buyer who creates demand •A producer - the seller who creates supply
Define demand. Demand is the amount of a good or service a consumer is willing and able to buy at a certain time and particular price (effective) on the basis of their income.
Describe the relationship between price and quantity demanded on a demand curve. The relationship between price and quantity demanded is negative or inverse because a rise in price should in theory result in a fall in demand.
How does consumer income affect demand? Depending on how much the consumer earns can affect the level of demand. The consumer's income may rise due to a pay rise or a new position with a higher level of pay, and so they are able to buy more.
What effect does a rise in income have on a normal good? Normal goods have a positive relationship with income. A rise in the income of a consumer should in theory result in an increase in the demand for normal goods and services, and the demand curve will shift to the right.
Give 3 examples of a normal good. Adidas trainers Tesco groceries A nice holiday to Turkey
What effect does a rise in income have on an inferior good? Inferior goods have a negative relationship with income - as income rises, the demand for these goods falls, and so the demand curve shifts to the left. This is because they are cheaper than normal goods and are in demand when incomes are lower.
Give 3 examples of inferior goods. Umbro shoes Groceries from Aldi Camping in Cornwall
How do changes in consumer tastes, fashion and habits affect demand? An increase in the demand for one good will be shown as the demand curve shifting to the right. However, this will caused the demand for the alternative good to shift to the left as it becomes less popular and its demand decreases.
How does advertising affect the demand for a good or service? Advertising increases demand because it raises awareness for a product or service. Therefore, advertising shifts the demand curve to the right, meaning that there is a greater quantity of demand at each existing price.
How is the demand for a good or service affected by the price of its substitutes? A fall in the price of one good will increase it's demand, and as a result cause a fall in the demand for a substitute good. Therefore, the relationship between substitute goods is a positive one - as the price for one falls, the demand for the other falls.
How is the demand for a good or service affected by the price of its complementary goods? A fall in the price of one good will increase it's demand, and therefore the demand for the complementary good should also rise. The relation between complementary goods is therefore negative - as the price of one good falls, the demand for the other increases.
Give 2 examples of the negative relationship between complements? If the price for PlayStation 4's fell, the demand for it's video games and accessories will also increase. If the price of oil rises, the demand for air travel will fall, because it's price will also rise.
How can the availability of credit increase consumer demand? A fall in interest rates on credit encourages consumers to borrow more money, and use it to purchase more goods and services. Therefore, the use of credit shifts the demand curve to the right.
How can legislation decrease consumer demand? Legislation is the act of government intervention, which causes demand to shift to the left as demand decreases. Acts of legislation include having a minimum age on consumer consumption, or limiting the consumption of a good by banning it from certain places.
How can the climate effect demand? Hotter climates will increase the demand for goods such as holidays, sun protection, and sunglasses, but decrease the demand for substitute goods such as scarves, hats and gloves. A colder climate will have the same opposite effect on substitute goods.
What are demographic factors that affect demand? Demographic factors are based on the changing structure of human populations, such as: •Population growth •The age structure of the population •The house structure of the population
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