Microeconomics 2302 questions for Exam 2

Here is an example of a question along with a possible answer. Please note the format.  Please do not write your answers in the standard block paragraph format! This is by no means the perfect answer.  It could certainly be better.  But, I wanted to give you a sense of what I am looking for in an answer. Question: Please thoroughly and completely explain the law of demand.  Answer:Definition of the law of demand o Demand is a schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time.The law of demand tells us that there is an inverse relationship between price and quantity demanded.  This is supported by the following three concepts:  Diminishing marginal utility which means consumption of successive units of a particular product will yield less and less marginal utility. Marginal utility –the change inutility that results from a one-unit change in the consumption of a good or service. The income effect -which means that a lower price increases the purchasing power of the buyers money income allowing the buyer to purchase more of the product than before. The substitution effect -which means that at a lower price buyers are motivated to substitute what is now a less expensive product for similar products that are now relatively more expensive.The law of demand is graphically represented as a downward sloping curve. An increase in demand is expressed graphically as a shift of the demand curve to the right while a decrease in demand is expressed as a shift of the demand curve to the left.  An increase or decrease in quantity demanded is represented as a movement alone a given demand curve and is caused by an increase or decrease of the price of the product. A demand curve will shift as a result of a change in one of the determinants of demand which are: Buyer tastes –a change in tastes can cause buyers to demand more, or less of a productNumber of buyers –an increase in the number of buyers will result in an increase in the demand for a productIncome – a.If income increases and the demand for a good increases, that good is called a normal good. b.If income increases and the demand for a good decreases, that good is called an inferior goodExpectations –expectations of buyers will impact demand.  If the buyer expects the price of the product to increase, this would likely cause a decrease in demand for the product.Prices of related goods –a.If the price of a good increases, we would expect the demand for the substitute good to increase.b.If the price of a good increases, we would expect the demand for its complement to decrease.Price of non-related goods –a price change for one good would have no impact on the demand for the other good.

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