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introduction-demand

QuestionAnswer
Derived demand This occurs when one commodity is an essential part of another commodity, and it is demanded not for it’s own sake
. Functional Demand This occurs when there is a demand for a good because it contains some built in quality
Composite Demand This occurs when a commodity is required for a number of different uses. E.g. timber for furniture, doors, windows
Demand schedule This is a table that shows the different quantities demanded for a good at various market prices at any given time
Individual Demand Schedule This lists the different quantities of a good that an individual consumer is prepared to buy at each price.
Market/Aggregate Demand Schedule This lists the different quantities of a good that all consumers in the market are prepared to buy at each price
Demand curve A demand curve is a graph illustrating the demand for a good
The law of demand Goods which obey this law have a negative relationship between price and quantity demanded, the demand curve for such goods will be downward – sloping from left to right.
There are some goods that don’t obey this law including . Giffen good: these are goods of relatively low quality which form an important element in the expenditure of low-income families
There are some goods that don’t obey this law including . Snob goods: certain goods like fur and jewellery have a status or snob value. The higher the price a person pays for this type of good the more exclusive it becomes
There are some goods that don’t obey this law including Commodities whose prices are effected by expectations: if the price of a commodity is constantly rising, then the demand for it may increase rather than decrease
Commodities If the price of a share is rising it usually shows that the company is doing well so there will be an increase in the demand for those shares which in turn will increase the price
Why does a person’s demand curve slope downwards from left to right? Hence, as price falls Mux rises, + quantity Px demanded of good x rises. There is a negative relationship between price and quantity demanded. (v) Thus the equi-marginal principle explains why a
Income: . Inferior goods: for a small number of goods called inferior goods, an increase in income leads to a decrease in demand at every price
. Tastes/Fashion When a commodity comes into fashion or into season there is an increase in quantity demanded at each price and vice versa
Expectations concerning future prices. If a consumer expects that future prices are likely to be greater than they are at present, then there may be an increase in the demand for the good at each price and vice versa.
What is the difference between a movement along a demand curve and a shift of a demand curve? Remember the factors which affect the demand for a good: Qd = f (P, Pog, Y, T, E, G, U) All of the above factors cause a total shift in a demand curve except P (price of the good itself) which causes only movement up and down the same demand curve.
The Income effect This occurs when the consumer’s demand for a good changes, and it is brought about by a change in his real income as a result of a change in the price of a good
The price effect This is the overall effect and occurs when the substitution effect and income effect are added together. (Price Effect = Substitution Effect + Income Effect)
To summarise An income effect because real income changes. When a good becomes cheaper relative to another, it takes less income to buy the good
2003 LCQ A consumer spends all income on two goods. Good A and Good B. Both are normal goods but they are not complimentary goods. The price of good A is reduced and the price of good B remains unchanged
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