3.1.5 Apply Concepts of Demand and shift of Demand curves

3.1.5 Apply Concepts of Demand and shift of Demand curves -...

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Natalie Rastello S473328 AP Microeconomics Assignment: Apply Concepts of Demand and Shifts of Demand Curves 1. The law of demand relates two variables: price and quantity demanded. A. What is the relationship between these variables? There is an inverse relationship between price and demand. B. What does quantity demanded mean? Quantity demanded means the amount of a good or service people want to buy at a given price. C. How does the concept of ceteris paribus apply to the law of demand? The Law of Demand refers to when there is a decline in the price of a good, holding everything else constant (ceteris paribus), leads to an increase in the quantity demanded. Ceteris paribus indicates that you must hold all variables constant in order to achieve accurate results with the law of demand. D. Draw a hypothetical demand curve. Completely label your graph. E. Explain in words how your drawing of a demand curve in part D demonstrates the law of demand you stated in part A. When price increases, quantity demanded decreases and vice versa. 2. Economists divide consumer responses to a change in price into two categories: the income effect and the substitution effect. Explain each.
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