Law of Demand- Operation

Law of Demand- Operation

Consumer is King. Be a king

Open Ended

What do you understand by the term demand?

Poll

Did the female go for the higher priced product or lower priced product?

• higher priced

• lower priced

• neither

Multiple Choice

The desire, ability and willingness to buy a product 

• Demand 
• Supply 
• Consume 

Multiple Choice

The law of demand refers to the inverse relationship between price and quantity demanded.

• true
• false

Multiple Choice

Which of these best describes the law of demand?

• if prices go up, quantity demanded will fall and if prices go down, quantity demanded will go up

• if prices go up, quantity demanded will also go up and if prices go down, quantity demanded will also go down

• there is no law of demand, each situation is unique and demand and prices cannot be predicted

• prices will go up for certain goods when quantity demanded goes up and vice versa

Multiple Choice

The Hong Kong government reduced income tax by 10%. The demand for shoes will 

• increase
• decrease

Multiple Choice

Definition of Marginal Utility

• the satisfaction from consumption

• to total satisfaction from consuming a product

• the extra satisfaction from the last unit consumed

• the extra consumption from last unit consumed

Income Effect

The income effect is the change in demand for a good or service caused by a change in a consumer's purchasing power resulting from a change in real income. This change can be the result of a rise in wages etc., or because existing income is freed up by a decrease or increase in the price of a good that money is being spent on.

Open Ended

What do you understand by real income?

Let's take a look at an example. Alex spends 25% of his income on food and 25% on entertainment. His company decided to lower his salary so he decides to spend less on entertainment. This is a direct change in his income resulting in his spending less due to the income effect.

Alex's salary does not change, but the price of food goes up. Indirectly his income has gone down since he now has less money to spend on other things as he has to spend more on food. Therefore, he reduces his spending on entertainment.

Poll

The price of Pepsi has increased. Will you purchase Thumbs Up instead?

• Yes

• No

Poll

The price of Lays has increased by ₹ 10. What will the consumer do?

• Purchase lays

• Choose a substitute

• Stop purchasing chips forever

Multiple Choice

When replacing a certain item with with a less costly item is an example of

• the substitution effect 
• the income effect 
• demand elasticity 
• complements 

Open Ended

There is a discount offer available at Smokin Joes. Domino's Pizza is providing their pizza's at the same price. Which pizza brand would you prefer choosing?

Substitution Effect

How an increase in the price of one good pushes the consumer to purchase the substitute good instead.

A rise in prices will have 2 effects-

• People will reduce overall consumption

• People will shift preferences to other goods