Theory question 104
Theory of DemandSection B (answer four questions only from this section)
(a) Describe each of the following: (i) Abnormal demand (ii) Effective demand
(b) Give three reasons for the occurrence of abnormal demand.
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(a)(i) Abnormal demand (exceptional demand) is demand that does not obey the law of demand: more is bought when price rises, or less when price falls, so the demand curve slopes upward.
(ii) Effective demand is the desire for a commodity backed by the ability and willingness to pay for it at a given price and time.
(b) Any three: Giffen goods (inferior staples bought more when their price rises); goods of ostentation/prestige (articles of conspicuous consumption); expectation of further price rises (or of further falls); ignorance – buyers judge quality by price; emergencies/necessities, e.g. during war or scarcity.
Abnormal demand gives an upward-sloping demand curve.