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1. Define the economic terms: individual (consumer) demand; market demand - Leaving Cert Economics - Question 1 - 2011
Question 1
1. Define the economic terms: individual (consumer) demand; market demand. Individual demand: the quantity of a good an individual consumer demands at different pri... show full transcript
Worked Solution & Example Answer:1. Define the economic terms: individual (consumer) demand; market demand - Leaving Cert Economics - Question 1 - 2011
Step 1
Define the economic terms: individual (consumer) demand; market demand.
Answer
Individual (consumer) demand refers to the quantity of a good that a single consumer is willing and able to purchase at a given price.
Market demand is the total quantity of that good demanded by all consumers in the market at various price levels.
Step 2
Explain, with the aid of labelled diagrams, the relationship between individual (consumer) demand and market demand.
Answer
The relationship between individual and market demand can be illustrated using diagrams. Here, individual demand curves represent the demand of single consumers, while the market demand curve is derived by summing the individual demand curves horizontally.
- Individual Demand Curve: A standard downward-sloping curve showing individual preferences.
- Market Demand Curve: A curve created by adding up all individual demands at each price level, also downward sloping but typically wider, showcasing the collective purchasing power.
Step 3
Distinguish between the economic meanings of a 'movement along a demand curve' and a 'shift in a demand curve' for concert tickets.
Answer
A 'movement along a demand curve' occurs when there is a change in the price of the good itself, leading to a change in quantity demanded while the curve remains unchanged. For instance, if the price of concert tickets decreases from P1 to P2, the quantity demanded increases from Q1 to Q2 along the same demand curve.
In contrast, a 'shift in a demand curve' happens when there is a change in any factor other than the price of the good. This causes the entire curve to move either right (increase in demand) or left (decrease in demand).
Step 4
State and explain two factors that would cause a shift in a demand curve for concert tickets.
Answer
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Income Levels: If consumers' income rises, they have more disposable income, which could increase the demand for concert tickets, shifting the demand curve to the right.
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Taste/Preference: If there is a rise in the popularity of a specific artist or concert, this can lead to increased demand for associated concerts. For instance, if a popular artist announces a tour, this may shift the demand curve for tickets to the right.
Step 5
Explain two assumptions underlying the Law of Diminishing Marginal Utility.
Answer
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Applies after a certain point called the origin: The assumption is that utility from additional units is maximized until the origin is reached; beyond this point, further consumption provides diminishing returns.
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Not applicable to addictive goods: For goods like cigarettes or alcohol, consumers may experience an increase in marginal utility with each additional unit consumed due to dependency.
Step 6
Using the Equi-Marginal Principle of Consumer Behaviour calculate the marginal utility of the ninth carton of juice. (Show all your workings.)
Answer
To find the marginal utility of the ninth carton of juice, we first calculate the total spending on health bars and juice:
Health Bars: 6 bars x €0.80 = €4.80 ; Juice: 9 cartons x €1.50 = €13.50 ;
Total expenditure = €4.80 + €13.50 = €18.30.
Using the equiproportionality, we can equate the marginal utility per euro spent on each product:
Let the marginal utility of the health bars be MU_HB and that of the juice be MU_J.
We know: Substituting known values:
Rearranging gives us:
Where we know the marginal utility of the 6th health bar is 40 utils: