12th Class Microeconomics: Demand and Law of Demand
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Questions and Answers

What is the definition of demand?

  • The desire to buy a good, combined with the ability to pay for it. (correct)
  • The willingness to provide goods to the market.
  • The amount of goods available for sale.
  • The quantity of goods supplied at a certain price.

    • Which of the following best describes the demand function?

  • It shows the relationship between demand and various influencing factors. (correct)
  • It illustrates the amount of goods produced at different prices.
  • It represents the preferences of consumers in the market.
  • It indicates the total supply available in a market.

    • How does price typically affect demand according to the law of demand?

  • Demand remains constant irrespective of price changes.
  • Demand increases as price increases.
  • There is no relationship between price and demand.
  • Demand decreases as price increases. (correct)

    • Which type of demand function reflects the combined demand from all consumers in a market?

    <p>Market Demand Function</p> Signup and view all the answers

    What is the effect of consumer income on demand?

    <p>Increased consumer income typically increases demand.</p> Signup and view all the answers

    Which of the following factors is NOT typically a determinant of demand?

    <p>Production costs of the good.</p> Signup and view all the answers

    Which best describes substitute goods?

    <p>Goods that can replace each other when prices change.</p> Signup and view all the answers

    According to the content, what does a negative relationship between price and demand signify?

    <p>As prices rise, demand typically decreases.</p> Signup and view all the answers

    What phenomenon occurs when the income effect outweighs the substitution effect?

    <p>Giffen Paradox</p> Signup and view all the answers

    Which term describes the change in demand for one good due to a change in the price of another good?

    <p>Cross Demand</p> Signup and view all the answers

    What happens to the demand for a substitute good if its price increases?

    <p>Demand for the substitute good increases.</p> Signup and view all the answers

    Which of the following defines a good that is used together with another good?

    <p>Complement Goods</p> Signup and view all the answers

    What does the law of demand state?

    <p>As the price of a good increases, the quantity demanded decreases.</p> Signup and view all the answers

    Which of the following is NOT an assumption of the law of demand?

    <p>Increasing Consumer Preferences</p> Signup and view all the answers

    What is it called when demand for a good increases due to a decrease in its price?

    <p>Expansion of Demand</p> Signup and view all the answers

    What typically causes a decrease in demand for a good?

    <p>Decrease in the price of substitute goods</p> Signup and view all the answers

    Which effect explains why as prices rise, the quantity demanded decreases?

    <p>Income Effect</p> Signup and view all the answers

    What does derived demand refer to?

    <p>Demand for a good influenced by the demand for another good</p> Signup and view all the answers

    What key factor drives a decrease in demand when consumer preferences change?

    <p>Shift in consumer tastes</p> Signup and view all the answers

    What relationship explains why the demand curve slopes downward?

    <p>Inverse Relationship between Price and Quantity Demanded</p> Signup and view all the answers

    Which factor could lead to an increase in demand?

    <p>High future price expectations</p> Signup and view all the answers

    What happens when the number of consumers in the market increases?

    <p>Demand increases for certain goods.</p> Signup and view all the answers

    What happens to the demand for a good if the price of a complementary good increases?

    <p>Demand for the original good decreases</p> Signup and view all the answers

    What is the key feature of a market demand schedule?

    <p>It illustrates total demand in a market at various price points</p> Signup and view all the answers

    Which of the following best describes the Law of Demand?

    <p>As price increases, quantity demanded decreases</p> Signup and view all the answers

    Inferior goods are characterized by which of the following?

    <p>Demand decreases as income rises</p> Signup and view all the answers

    Which type of demand reflects the additional demand for a service arising due to the demand for a related good?

    <p>Derived Demand</p> Signup and view all the answers

    The upward slope of the income demand curve indicates what relationship?

    <p>As income rises, quantity demanded increases</p> Signup and view all the answers

    What distinguishes a Giffen good from regular inferior goods?

    <p>Demand increases as price increases</p> Signup and view all the answers

    What is characterized by the joint consumption of goods?

    <p>Joint Demand</p> Signup and view all the answers

    Which statement about substitute goods is true?

    <p>Demand for one increases when the price of the other increases</p> Signup and view all the answers

    Which of the following describes the Engel's Curve?

    <p>It illustrates the relationship between income and quantity demanded</p> Signup and view all the answers

    How does the distribution of wealth affect demand?

    <p>It influences demand for various goods based on income levels</p> Signup and view all the answers

    What creates an inverse relationship between quantity demanded and price in a price demand curve?

    <p>Higher prices leading to lower affordability</p> Signup and view all the answers

    What does the demand schedule systematically show?

    <p>The relationship between price and quantity demanded at various price points</p> Signup and view all the answers

    Study Notes

    Introduction to Microeconomics

    • This lesson is part of a 30-day series covering micro and macroeconomics for class 12 students.
    • The series uses short, easy-to-understand video modules.
    • The lesson focuses on "Demand and the Law of Demand".

    Demand

    • Demand is the desire to buy a good, with the ability to pay for it, at a specific time.
    • Example: wanting and being able to afford a mobile phone.
    • Demand for a good only exists when it is purchased at a specific price during a given time.
    • Demand occurs when a consumer wants to buy a good at a particular price during a specific period.

    Demand Function

    • The demand function shows how a good's demand relates to its influencing factors.
    • Relationships can be positive or negative.
      • Price and demand have a negative relationship: higher prices lead to lower demand, and vice versa.
      • Consumer income and demand have a positive relationship: higher income leads to higher demand, and vice versa.
    • Types of Demand Functions:
      • Individual demand function (personal): shows a single consumer's demand.
      • Market demand function: shows the total demand of all consumers in a market.

    Factors Affecting Demand

    • Price of the good: the primary driver of demand.
    • Consumer income: affects purchasing power and demand.
    • Utility of the good: the satisfaction a consumer gets from it impacts demand.
    • Prices of related goods:
      • Substitute goods: if the price of a substitute rises, demand for the original good may increase (e.g., tea and coffee).
      • Complementary goods: if the price of a complement rises, demand for the original good may decrease (e.g., cars and petrol).
    • Consumer preferences: changing tastes, trends, and fashion heavily impact demand.
    • Distribution of wealth: how income is spread within a society can affect demand for various goods.

    Demand Table and Demand Schedule

    • A demand table/schedule shows the relationship between a good's price and the quantity demanded at various price points.
    • Reflects quantity demanded at different prices at a particular time.
    • Illustrates how demand changes with price changes.
    • Exists for individual and market levels.

    Types of Demand Schedules

    • Individual demand schedule: shows one consumer's demand across various prices.
    • Market demand schedule: shows the total demand across all consumers for a certain good.

    Demand Schedule and Law of Demand

    • Individual demand schedule shows the relationship between price and quantity demanded by a single consumer.
    • Market demand schedule shows the total quantity demanded across all consumers in a market.
    • Law of Demand: As price increases, quantity demanded decreases, and vice versa.
    • Inverse relationship: Price and quantity demanded move in opposite directions.

    Types of Demand

    • Price demand: demand solely dependent on the good's price.
    • Income demand: demand influenced by the consumer's income.
      • Normal goods: demand increases as income rises (e.g., luxury items).
      • Inferior goods: demand decreases as income rises (e.g., generic brands).
    • Cross demand: demand for one good impacted by another good's price change.
      • Complementary goods: demand for one good decreases with a rise in the price of a related complementary good (e.g., coffee and sugar).
      • Substitute goods: demand for one increases with a rise in the price of a related substitute good (e.g., tea and coffee).
    • Other demand types:
      • Joint/combined demand: demand for several goods used together (e.g., car and petrol).
      • Derived demand: demand for a good stemming from the demand for another related good (e.g., steel from cars).
      • Composite/collective demand: demand for a good used for multiple purposes (e.g., electricity for lighting, heating).

    Price Demand Curve

    • Shows the inverse relationship between price and quantity demanded.
    • Downward sloping: higher prices lead to lower quantities demanded, vice versa.
    • Individual vs. Market demand curve: individual represents one consumer, market is the sum of all consumers.

    Income Demand Curve

    • Shows the positive relationship between income and quantity demanded.
    • Upward sloping: higher income results in a higher quantity demanded.
    • Known as Engel's Curve.

    Inferior Goods

    • Perceived as lower quality/inferior to superior goods.
    • Purchased primarily due to lower prices, especially with limited income.
    • Demand decreases as income rises; consumers opt for higher quality as they become richer.
    • Giffen goods: a rare type of inferior good where demand increases with a rise in price (a positive relationship).

    Other Demand Types

    • Joint/Combined Demand: Demand for goods used together.
    • Derived Demand: Demand for one good due to demand for another.
    • Composite Demand: Demand for a single good with multiple uses.

    The Law of Demand

    • As price increases, quantity demanded decreases, and vice versa, assuming other factors remain constant.
    • A qualitative statement (direction, not magnitude).
    • Inverse relationship: price and quantity demanded move oppositely.
    • A general principle for most goods.

    Assumptions of the Law of Demand

    • Constant consumer income.
    • No changes in consumer preferences.
    • Stable prices of related goods.
    • No future price change expectations.

    Why the Demand Curve is Downward Sloping

    • Due to the inverse price-quantity relationship.
    • Factors:
      • Diminishing marginal utility: Satisfaction from extra units decreases.
      • Income effect: Higher prices reduce consumers' purchasing power.
      • Substitution effect: Consumers switch to cheaper substitutes.
      • Changing consumer preferences.

    Reasons for an Increase in Demand

    • Factors:
      • Increased consumer income.
      • Increase in substitute good prices.
      • Decrease in complementary good prices.
      • Changes in consumer preferences.
      • Increased number of consumers.
      • Expectations of future price increases.

    Reasons for a Decrease in Demand

    • Factors:
      • Decreased consumer income.
      • Increased complementary good prices.
      • Decreased substitute good prices.
      • Changes in consumer preferences.
      • Decreased number of consumers.
      • Expectations of future price decreases.

    Factors Affecting Demand

    • Demand can decrease due to:
      • Lower substitute good prices.
      • Decreasing consumer preferences or tastes.
      • A reduction in the number of buyers.
      • Anticipation of future price reductions.
      • Predicted decrease in consumer income.

    Expansion of Demand

    • Increased demand due to a price decrease.

    Increase in Demand

    • Quantity demanded increases due to non-price factors (e.g., income).

    Contraction of Demand

    • Decreased demand due to a price increase.

    Decrease in Demand

    • Quantity demanded decreases due to non-price factors (e.g., income).

    Ceteris Paribus (Other things being equal)

    • Holding all factors constant except one during analysis.

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    Description

    This quiz is designed for 12th class students studying Microeconomics. It covers the concept of demand and the law of demand, providing essential definitions and perspectives from renowned professors. Prepare for exams with this concise and informative quiz.

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