IB Economics – Competitive Markets: Demand and Supply

1.1: Demand

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1.1 DEMAND: STUDENT LEARNING ACTIVITY

Answer the questions that follow.

1. DEFINITIONS

Define the following terms:

 Goods  Demand schedule
 Services  Market demand
 Consumer  Determinants of demand
 Supplier  Demand curve
 Factors of production  Normal goods
 Quantity demanded  Inferior goods
 Demand  Related goods
 Market  Compliments
 Competitive markets  Substitutes
 Competition  Linear function
 Law of demand  Variable
 Effective demand  Demand function
 Income effect of a change of price  Coefficient
 Substitution effect of a change of price  Inverse relationship
 Income  Ceteris paribus
[10 marks]

2. SHORT- ANSWER QUESTIONS

1. Distinguish between a market and a competitive market. [4 marks]

2. Distinguish between product and resource markets. [4 marks]

3. Explain the relationship between price and quantity demanded. [4 marks]

 IB Economics – Competitive Markets: Demand and Supply
1.1: Demand

4. Explain the role of the substitution effect and the income effect of a change in price in explaining
the law of demand. [4 marks]

5. Distinguish between a change in demand and a change in quantity demanded. [4 marks]

6. Distinguish between a change in demand and a change in quantity demanded. [4 marks]

7. Use diagrams to contrast a movement along a demand curve and a shift of the demand curve.
[4 marks]

8. Describe the relationship between an individual’s consumer demand and the market demand.
[4 marks]

9. Use diagrams to contrast an increase in demand and an increase in quantity demanded.

[4 marks]

10. Explain how the following factors may change the demand for a good or a service:
i. Changes in income (for normal and inferior goods)
ii. Changes in preferences
iii. Prices of related goods (for complements and substitutes)
iv. Demographic changes [10 marks]

3. DEM AND SCHEDULES AND DEMAND CURVES

1. Sketch a demand curve from the following information: [2 marks]

2. Using information in Table 1 above, construct a new demand schedule showing the effect of a 20
percent increase in demand for chocolate bars at each price. [2 marks]
 IB Economics – Competitive Markets: Demand and Supply
1.1: Demand

3. Use the following information in table 2 to sketch the market demand for the following good.
[4 marks]

Table 2: Individual consumer demand for good A.

Price Consumer Consumer Consumer Consumer Consumer Consumer Consumer

‘A’ ‘B’ ‘C’ ‘D’ ‘E’ ‘F’ ‘G’

$0.50 90 100 70 200 90 50 140

$1.00 70 90 60 180 80 40 100

$1.50 50 80 50 160 70 30 80

$2.00 30 70 40 140 60 20 60

$2.50 10 60 30 120 50 10 50

4. Construct a demand schedule using the information in the demand curve below. [4 marks]

5. Using diagrams, show the impact of the following on the demand curve for good A: [12 marks]
i. Consumer incomes increase and good A is an inferior good
ii. The number of consumers in the market for good A decreases
iii. Consumer incomes increase and good A is a normal good
iv. The price of substitute good B decreases
v. The price of complement good C increases
vi. Better product marketing means good A is becoming more preferred.
 IB Economics – Competitive Markets: Demand and Supply
1.1: Demand

6. Illustrate the change indicated by the title of each graph; label the changes fully. [12 marks]

A decrease in price An increase in demand

i ii

A price increase A decrease in demand

iii iv

A decrease in quantity demanded An increase in quantity demanded

v vi