Market Economy MCQ 2 (Demand)

Factors Causing a Shift in Demand

• Change in income affects demand differently for normal and inferior goods:
  • Normal goods: demand increases when income rises
  • Inferior goods: demand decreases when income rises

Substitutes and Complements

• Substitutes: goods that are alternatives to each other, e.g., Coca Cola and Pepsi
  • Change in price of substitutes affects demand for the original good
• Complements: goods bought and sold together, e.g., diesel engine cars and diesel
  • Change in price of complements affects demand for the original good

Advertising and Consumer Preferences

• Negative publicity: decreases demand, e.g., negative emissions publicity affecting beef demand
• Positive publicity: increases demand, e.g., growing health awareness increasing demand for fitness watches

Future Expectations

• Expectation of lower future prices: shifts demand curve to the left, e.g., Black Friday sales
• Expectation of higher future prices or shortages: shifts demand curve to the right, e.g., toilet paper demand during Covid

Demographic Factors

• Changes in population or market size affect demand, e.g., increased emigration decreasing demand for public transport

Credit Availability

• High availability of credit: leads to higher demand

Unplanned Factors

• Unforeseen events, such as good weather, increase demand for certain products, e.g., ice cream

The Law of Demand

• The law states that there is a direct relationship between the price of a good or service and the quantity demanded.
• As the price of a good or service falls, the quantity demanded will rise.
• Conversely, as the price of a good or service rises, the quantity demanded will fall.
• This law suggests that consumers are more likely to buy a good or service when the price is lower, and less likely to buy when the price is higher.

Learn about the factors that cause a shift in demand, including changes in income, prices of substitutes and complements, and more.