Unit 2.1 Demand Theory

Front

What is demand theory?

Back

Demand theory covers the nature of demand, the law of demand, utility theory, and non-price factors affecting demand.

Front

What is the importance of markets in microeconomics?

Back

Markets are central to microeconomics, where buyers and sellers interact to establish the price and quantity of goods or services traded.

Front

How can markets be defined?

Back

Markets can be narrowly defined (e.g., designer sunglasses in South Africa) or broadly defined (e.g., the world energy market).

Front

What does neoclassical economic theory focus on?

Back

It focuses on the interaction of demand and supply in markets.

Front

Define demand in economic terms.

Back

Demand is the willingness and ability of consumers to pay for a good or service at a given price and time.

Front

What is the law of demand?

Back

The law of demand states there is an inverse relationship between the price of a good and the quantity demanded.

Front

What happens to demand as the price of a good rises?

Back

As the price rises, the quantity demanded falls.

Front

What is the demand curve?

Back

The demand curve shows the negative relationship between the price and quantity demanded of a good or service.

Front

Explain the real income effect.

Back

As the price of a good falls, the quantity demanded increases because consumers can afford more of it.

Front

What is the substitution effect?

Back

As the price of a good falls, the quantity demanded rises because it offers greater satisfaction compared to substitutes.