Questions for Review without Answers
Chapter 8. Demand Theory I. The Demand Curve. Consumer Behaviour
I. Basics
1) Give two definitions of the terms demand and quantity demanded.
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2) Explain the difference between a change in quantity demanded and a change in demand.
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3) What does the law of demand postulate?
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4) Is a shift of the demand curve to the right an increase or a decline in demand?
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5) What is market demand?
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6) Draw your demand curve for digital cameras.
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7) Write down the formula for the propensity to consume.
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II. Demand for What?
8) Define the following terms and give an example of each:
A. Durables
B. Non-durables
C. Services
D. Substitutes
E. Complements
F. Inferior goods
G. Giffen goods
H. Necessities
I. Luxuries
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9) What are normal goods?
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10) Explain what happens to demand for an inferior good when incomes rise.
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III. Consumer Behaviour
11) Please name some goods whose demand is affected by conspicuous consumption.
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12) And name some goods whose demand is not affected by conspicuous consumption.
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13) Please distinguish the direct and indirect influences that consumer purchases have on each other.
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IV. Why the Demand Curve Slopes Downwards from Left to Right
14) What is the income effect?
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15) And the substitution effect?
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16) Why is diminishing marginal utility the best explanation for the slope of the demand curve?
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17) Write down the equation to express the equimarginal principle for bundles.
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18) What does a rational consumer do when the price of one of the commodities in his bundle has been raised?
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19) Commodity A and B cost $3each. The marginal utility you get from the last A is 5; the marginal utility you get from the last B is 3. What do you do to optimise your bundle?
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20) Explain how the consumers of inferior goods and Giffen goods respond to changes in price and income.
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