3- demand

Question 1

deriving D curve if P for one good (x axis) falls

Answer 1

b.c. rotates outwards, new utility maximising quantity of x-axis good, traces out movement along D curve.

Question 2

budget increase effect

Answer 2

budget line shifts out (parallel, if P kept constant)

Question 3

engel curve

Answer 3

relates income to Q demanded

Question 4

income increase on normal good

Answer 4

more of good demanded

Question 5

income increase on inferior good

Answer 5

less of good demanded

Question 6

change in price effect

Answer 6

good made relatively more/less expensive, change in real income of consumer

Question 7

price change effect on D

Answer 7

income effect, substitution effect

Question 8

income effect

Answer 8

change in purchasing power / real income

Question 9

substitution effect

Answer 9

change in P = good substituted

Question 10

direction of income depends on

Answer 10

type of good

Question 11

if price increases of a normal good, income effect is

Answer 11

negative

Question 12

if price increases of an inferior good, income effect is

Answer 12

positive

Question 13

why is direction of substitution always negative

Answer 13

P increase = less of good consumed, substituted w cheaper good

Question 14

Slutsky equation

Answer 14

TE = SE + IE

Question 15

income effect dominates if

Answer 15

IE > SE

Question 16

giffen goods’ D curve slopes

Answer 16

upwards; P increase = demand increased

Question 17

giffen goods type

Answer 17

inferior

Question 18

P falls: IE, SE, TE for normal good

Answer 18

(consumption increase) SE +, IE +, TE ++

Question 19

P falls: IE, SE, TE for inferior good

Answer 19

(consumption increase) SE +, IE -, TE ?

Question 20

P rise: IE, SE, TE for normal good

Answer 20

(reduce consumption) SE -, IE -, TE –

Question 21

P rise: IE, SE, TE for inferior good

Answer 21

(reduce consumption) SE -, IE +, TE ?

Question 22

why can the sign for inferior goods not be predicted

Answer 22

because it depends if IE or SE is stronger