1. Demand

What is demand?

The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.

What are the 3 types of demand?

1. Effective demand

2. Latent demand

3. Derived demand

What is effective demand?

The desire and ability of consumers to purchase goods at different prices.

What is latent demand?

When there is a willingness to purchase a good or service but the consumer lacks purchasing power to afford the product (potential demand)

What is derived demand?

Demand for a good or service that is a result of demand for a different good or service. e.g product X is linked to demand for product Y.

What does the demand curve look like?

What is the relationship between the price of a good and demand?

Inverse relationship

What is the law of demand?

A rational response from consumers stating that when price increases, demand decreases and when price decreases, demand increases.

What factors cause a shift in demand?

1. Income levels

2. Price of competitor goods

3. Population changes

4. Changes in trends and fashions

5. Changes in legislation

6. Advertising

7. Changes in interest rates

What happens to the demand curve when demand changes?

Demand increase = outwards shift

Demand decrease = Inward shift

What are substitute goods?

Two goods that could be used for the same purpose. If the price of Y increases, demand for X may rise.

What are complementary goods?

Goods used together. If demand for one increases, demand for the other will increase too.

Give an example of substitute goods

McDonald's and Burger King

Give an example of complementary goods

Phones and phone cases.

What happens if the price of one substitute good increases?

Customers will move to another business who can then increase their prices over time as the demand curve has shifted outwards.