Unit 2

Question 1

Reasons for downward sloping demand curve

Answer 1

Substitution effect
Income effect
Law of diminishing marginal utility

Question 2

Substitution effect

Answer 2

P increase for iphones - switch - QD decrease for iphones

Question 3

Income effect

Answer 3

P decrease - purchasing power increase - QD increase

Question 4

Law of diminishing marginal utility

Answer 4

Decreasing price in order to increase marginal utility (increase the positives of buying it)

Question 5

Effect of a per unit tax on CS, PS and DWL

Answer 5

producer will try and pass it onto the consumer, but a P increase will decrease demand. Instead the producer will take the tax, reducing PS

Question 6

Increase in demand

Answer 6

S NC
D increase
P increase
Q increase

Question 7

Decrease in demand

Answer 7

S NC
D decrease
P decrease
Q decrease

Question 8

Increase in supply

Answer 8

S increase
D NC
P decrease
Q increase

Question 9

Decrease in supply

Answer 9

S increase
D NC
P increase
Q decrease

Question 10

Price Ceilings

Answer 10

A maximum price
Set below the equilibrium to stop prices from rising
QS decreases but QD increases

Question 11

Price floor

Answer 11

Minimum price set above the equilibrium to stop the prices from falling