THE LAWS

Question 1

State the law of demand

Answer 1

There is an inverse relationship between price and quantity. As price goes up, quantity demanded goes down and vice versa.

Question 2

State the Law of Supply

Answer 2

There is a direct relationship between price and quantity . When Price increases, Quantity Increases and vice versa.

Question 3

State two reasons for the law of demand

Answer 3

Subsitution effect and income effect

Question 4

What is the subsitution effect

Answer 4

This refers to the fact that as the price of a good or service increases, consumers are more likely to substitute it for other goods or services that are cheaper and provide a similar level of utility.

Question 5

What is the income effect

Answer 5

This refers to the fact that as the price of a good or service increases, consumers have less disposable income to spend on other goods and services, leading to a decrease in their overall consumption