Question

a) Explain why the Demand Curve is downward-sloping (2 sentences max.) b) Under which circumstances do we move up the supply curve as opposed to shifting the whole curve? (2 sentences max.) c) What is the difference between a "normal" and "inferior" good? For which demand shifter is this distinction particularly important? (3 sentences max.) d) State a good that you deem “inferior”. Briefly explain why (1 sentence max.). 1

Answer 1

Ans.a- Demand curve is downward sloping because there is a negative relationship between price and quantity demanded. As the price of a good increases people will buy less of that good.

Ans.b- When the price of a good rises we move up the supply curve.

Ans.C- A normal good is the one whose demand increases with an increase in income.

An inferior good is the one whose demand decreases with an increase in income.

This distinction is particularly important when there is a change in income.

Ans.d- Cheaper cars. As the income of consumers increases their demand for cheaper cars decrease.