2.2 Quiz

The law of demand states as prices increase

• quantity demanded increases

• quantity demanded decreases

• demand increases

• demand decreases

Answer explanation

Make sure to distinguish between a change in quantity demanded and an increase/decrease in demand. An increase/decrease in quantity demanded refers to the contraction or expansion of the demand curve. An increase/decrease in demand means the curve is shifting right or left.

How will an increase in the price of lamb affect the beef market?

• Increase Demand

• Decrease Demand

• Increase Supply

• Decrease supply

Answer explanation

Lamb and beef are considered substitutes. If the price of lamb rises, more consumers will switch to beef causing demand to increase.

How will an in improvement in technology affect the phone market?

• Increase Demand

• Decrease Demand

• Increase Supply

• Decrease supply

Answer explanation

Technology relates to efficiency of production. This means producers will be able to produce more at any given price.

How will a decrease in income tax affect the 2-minute noodle market? (Hint: HARD Question!)

• Increase Demand

• Decrease Demand

• Increase Supply

• Decrease supply

Answer explanation

This relates back to normal goods vs inferior goods. 2-minute noodles are regarded as inferior goods, hence as there is an increase in income there will be less purchased as consumers switch to more expensive alternatives

How will a drought (i.e. no rain) affect the market for bananas?

• Increase Demand

• Decrease Demand

• Increase Supply

• Decrease supply

Answer explanation

A drought will reduce the ability to grow bananas causing supply to decrease