MARKETS

Demand

Question 1

1. Carefully explain why a typical demand curve slopes downwards.

2. Distinguish between normal and inferior goods.

3. What are the main underlying determinants of demand for the following:

   1. Holidays in Scotland

   2. A daily newspaper

   3. Healthcare

Question 2

Using an example of your own, distinguish between shifts of demand and movements along a demand curve.

Question 3

The following is a demand schedule for cheeseburgers for an individual.

1. Plot the demand curve for cheeseburgers, with price on the Y-axis, and quantity demanded per week on the X-axis.

2. Assume the individual has a fixed budget of £24 per week to spend on burgers, and the current price of cheeseburgers and chicken burgers is £3.00, and that a consumer buys 4 of each type of burger. Now assume that the price of cheeseburgers falls to £2. Using the concept of the ‘income’ and ‘substitution’ effect, explain why the demand for cheeseburgers rises to 6.

3. Assuming chicken and cheeseburgers are perfect substitutes, and income is fixed at £24, what is likely to happen to the demand for chicken burgers (to the nearest burger) if the price of cheeseburgers rises to £4.00?