Question 1

A movement along the demand curve may be caused by:
A) A change in income
B) A change in advertising
C) A change in the price of substitutes
D) A change in price

Accepted Answer

A movement along the demand curve is caused by a change in the price of the good or service itself, not by changes in external factors such as income, advertising, or the prices of substitutes.

Question 2

What would the effect on the demand for product A be, as a result of an increase in the price of a substitute product?
A) An inward shift in the supply curve for A
B) An inward shift of the demand curve for A
C) An outward shift of the demand curve for A
D) A fall in the quantity demanded of product A

Accepted Answer

An increase in the price of a substitute product makes product A more attractive to consumers, leading to an increase in demand for product A. This is represented by an outward shift of the demand curve for product A.

Question 3

An increase in the price of a product (if demand is downward sloping) will lead to:
A) An increase in quantity demanded
B) An outward shift in demand
C) An outward shift in supply
D) A decrease in quantity demanded

Accepted Answer

An increase in the price of a product, assuming demand is downward sloping, will lead to a decrease in quantity demanded. This is because, according to the law of demand, there is an inverse relationship between price and quantity demanded.

Question 4

A decrease in the price of a product (if demand is downward sloping) will lead to:
A) An increase in quantity demanded
B) An outward shift in demand
C) An outward shift in supply
D) A decrease in quantity demanded

Accepted Answer

An increase in quantity demanded occurs because, according to the law of demand, there is an inverse relationship between the price of a product and the quantity demanded. When the price decreases, consumers are willing to buy more of the product, hence the quantity demanded increases.

Question 5

An increase in a person's income will have what effect on demand for 'inferior goods'
A) An increase in quantity demanded
B) An outward shift in demand
C) An inward shift in demand
D) A decrease in quantity demanded

Accepted Answer

Inferior goods are those for which demand decreases as a person's income increases, leading to an inward shift in demand.

Question 6

An increase in demand for a normal product might occur because of:
A) A rise in the price of a complement
B) A fall in the price of a substitute
C) An increase in the number of customers
D) An increase in supply

Accepted Answer

An increase in the number of customers leads to higher demand for a product, as more people are willing to purchase it.

Question 7

For a Veblen good the quantity demanded falls when the price increases.

Accepted Answer

For a Veblen good, the quantity demanded actually increases as the price increases, because its high price makes it a status symbol.

Question 8

The demand for a product will shift outwards if the price of a complement increases.

Accepted Answer

When the price of a complement increases, the demand for the product typically decreases because the two are used together, making the combined cost of using both products higher.

Question 9

The extra satisfaction from consuming another unit of a product is called the ________ _______.

Accepted Answer

The answer of The extra satisfaction from consuming another unit...

Question 10

If two products are substitutes a decrease in price of one will:
A) Lead to a movement along the demand curve of the other.
B) Reduce supply of the other.
C) Shift demand for the other inwards.
D) Shift demand for the other outwards.

Accepted Answer

When two products are substitutes, a decrease in the price of one product makes it more attractive relative to the other, causing consumers to switch their preference to the cheaper option. This results in a decrease in demand for the other product, hence shifting its demand curve inwards.

Question 11

An inferior good is one for which:
A) Quantity demanded will fall if price falls.
B) Demand falls when income falls.
C) Quantity demanded rises when price rises.
D) Demand falls when income increases.

Accepted Answer

An inferior good is characterized by a decrease in demand when consumer income increases, as consumers opt for more expensive substitutes.

Question 12

The level of effective demand for a product does not depend on:
A) Customer incomes
B) The cost of inputs
C) The price of competitor's products
D) The number of substitutes within the market

Accepted Answer

The level of effective demand for a product is determined by factors that directly affect the consumer's ability and willingness to buy, such as customer incomes, the price of competitor's products, and the number of substitutes within the market. The cost of inputs is a factor that affects the supply side, not the demand side.

Question 13

During a recession, customers tend to:
A) Increase their effective demand for goods and services.
B) Increase their expenditure on goods and services.
C) Decrease their effective demand for goods and services.
D) None of the above.

Accepted Answer

During a recession, customers tend to decrease their effective demand for goods and services due to lower income levels and economic uncertainty, leading to reduced spending.

Question 14

Diminishing marginal utility leads to the demand curve generally being:
A) Vertical
B) Upward sloping
C) Horizontal
D) Downward sloping

Accepted Answer

Diminishing marginal utility means that as a consumer consumes more of a good, the additional satisfaction (utility) gained from consuming an additional unit of that good decreases. This principle is a key reason why demand curves are generally downward sloping: as the price of a good decreases, consumers are willing to buy more of it because the cost of obtaining the additional utility (satisfaction) from each extra unit consumed is lower.

Question 15

The divergence between marginal and total utility may be described by:
A) The utility paradox
B) The paradox of value
C) Utility divergence
D) Value divergence

Accepted Answer

The paradox of value, also known as the diamond-water paradox, describes the divergence between the total utility, which is high for water because it is essential for life, and the marginal utility, which is low because water is abundant, compared to diamonds, which have high marginal utility and price due to their rarity but low total utility in terms of survival or necessity.

Question 16

The marginal utility derived from consuming water is ____ and the total utility derived from consuming water is ______.
A) Low, low
B) High, high
C) Low, high
D) High, low

Accepted Answer

The marginal utility derived from consuming water is low because as one consumes more water, the additional satisfaction (utility) gained from consuming each additional unit decreases. However, the total utility derived from consuming water is high because water is essential for life, and the overall satisfaction gained from its consumption is significant.

Question 17

Relative to water, the marginal utility derived from diamonds is:
A) High
B) Low
C) No different
D) None of the above

Accepted Answer

The marginal utility derived from diamonds is high relative to water because diamonds are scarce and have a high value per unit, whereas water is generally more abundant and has a lower value per unit. This concept is related to the paradox of value, where items with less utility (like water, which is essential for life) may have a lower price than items with higher marginal utility but less overall utility (like diamonds, which are not essential but are scarce and desired).

Question 18

When consuming a large meal in a buffet restaurant, marginal utility:
A) Will always be positive.
B) May become negative.
C) Will always be increasing.
D) None of the above.

Accepted Answer

Marginal utility refers to the additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. Initially, as one starts to consume food from a buffet, the marginal utility is positive and high because each additional bite is more satisfying when you are hungry. However, as one continues to eat more and more, the additional satisfaction from each extra bite starts to decrease. Eventually, it can reach a point where consuming more actually makes one feel worse, such as feeling uncomfortably full or even sick, which means the marginal utility becomes negative. This is why the correct answer is that marginal utility may become negative.

Question 19

Utility is maximised when:
A) Total utility is as large as possible.
B) Total utility is zero.
C) Marginal utility is zero.
D) Marginal utility = total utility.

Accepted Answer

Utility is maximized when marginal utility is zero because it indicates that any additional consumption does not increase total utility, suggesting the optimal consumption point has been reached.

Question 20

If the quantity demanded for a good is given by the equation Qd = 100 - 4P, if the price is £10, then the quantity demanded is:
A) 96
B) 60
C) 40
D) 2.5

Accepted Answer

Substituting P = £10 into the demand equation Qd = 100 - 4P gives Qd = 100 - 4(10) = 100 - 40 = 60.

Quiz 3: Demand

A movement along the demand curve may be caused by:

What would the effect on the demand for product A be, as a result of an increase in the price of a substitute product?

An increase in the price of a product (if demand is downward sloping) will lead to:

A decrease in the price of a product (if demand is downward sloping) will lead to:

An increase in a person's income will have what effect on demand for 'inferior goods'

An increase in demand for a normal product might occur because of:

For a Veblen good the quantity demanded falls when the price increases.

The demand for a product will shift outwards if the price of a complement increases.

The extra satisfaction from consuming another unit of a product is called the __ _.

If two products are substitutes a decrease in price of one will:

An inferior good is one for which:

The level of effective demand for a product does not depend on:

During a recession, customers tend to:

Diminishing marginal utility leads to the demand curve generally being:

The divergence between marginal and total utility may be described by:

The marginal utility derived from consuming water is and the total utility derived from consuming water is __.

Relative to water, the marginal utility derived from diamonds is:

When consuming a large meal in a buffet restaurant, marginal utility:

Utility is maximised when:

If the quantity demanded for a good is given by the equation Qd = 100 - 4P, if the price is £10, then the quantity demanded is: