Macroeconomics Unit 2 Challenges.docx - u221e 2.1.1 Law of...

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2.1.1 Law of Demand o As the price of a product increases, people purchase less. This is because they are able to find substitutes for the product in question. These changes create movement along the demand curve. o Which of the statements is FALSE relating to the Law of Demand? The Law of Demand takes into account all other variables in the market. TRUE of Law of Demand: o If the producer increases the price of a good, consumers will demand a lower quantity. o Consumers can usually find substitutes to the good in questions. o Perfectly inelastic demand is an exception to the Law of Demand. o Using the above graph, which of the following statements is false relating to the Law of Demand When Price decreases, the quantity demanded will always increase by the same amount. True: o The law of demand expresses a negative relationship between quantity on the X Axis and price on the Y axis. o A movement along the demand curve is due to a change in price. o A reduction in price will result in an increase in quantity. 2.1.2 Shifts in Demand
o A demand curve can shift for many reasons. Select the reason below that does NOT shift a demand curve. Changes in the price of the good. DOES: o Price of substitutes increases o Changes in preferences o Price of complements increases o During the 18 th Century, as troubles with Britain escalated, American colonists stopped drinking British tea, and instead started drinking coffee. This is an example of which factor of demand. Change in taste/preference. o According to recent numbers, demand for college education had fallen in recent years. Which of the following examples would indicate a movement along the demand curve?

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