This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Rahim Spencer ECON 203 9/14/09 Chapter 3 Study Questions 1. The law of demand is that if the price of a product falls, the quantity demanded rises, and as price rises, the quantity demanded falls. This is because of the income and sub- stitution effects, which state that if prices are less, a purchasers income has more power, and that products at lower prices have a higher incentive to buy because of the relative prices to other products. The downward slope in the demand curve reflects the law of demandpeople buy more of a product, service, or resource as the price falls, and the law of demand has an inverse relationship between price and quantity. A de- mand curve is derived from individual demand curves because competition requires more than one buyer. It can be derived by adding up the demand curves of individuals in either graphical or table format. 2. The determinants of demand are the, other things equal, which includes a con- sumers tastes (preferences) the number of buyers in the marker, consumers incomes, the prices of related goods, and consumers expectations. When any of these changes, the demand curve will shift to either the right or left. A change in demand denotes that there has been a change in the determinants of demands. This includes changes in taste, income, the number of buyers, the prices of related goods (includes complement- ary and substitute items), and consumer expectations. A change in the quantity deman- ded denotes a change from point on the demand curve to a different point on the de- mand curve, which can be caused when the price is increased or decreased from one price to another. 3. a.)If small automobiles become fashionable, then the demand of small cars will in- crease. b.) If the price of large automobiles rises then the demand for small automobiles will increase. c.) If income declines and small automobiles become an inferior good, then the demand for small automobiles will decrease. d.) If consumers indicate that the price of small automobiles will drop in the future, then their demand will decrease, but increase in the future when the price goes down. e.) If the price of gasoline substantially drops, then the demand for small automobiles will decrease....
View Full Document