1. What is the law of demand? The law of demand is when all else equal, as the price of a product increases, a lower quantity will be demanded; likewise, as the price of a product decreases, a higher quantity will be demanded. 2. What leads to a decrease in the quantity demanded of a good or service? An increase in the price of the commodity will lead to a decrease in quantity demanded long as the other variables— income, the price of related commodities, consumer tastes, price expectations, and the number of customers—remain constant 3. Explain the difference between a change in demand and a change in quantity demanded. What leads to each of these changes? In terms of the demand curve, a change in quantity demanded is moving along an existing demand curve while a change in demand is a shift of the demand curve to the left or right. A change in quantity demanded is brought about by a change in price while a change in demand is brought about by a change in income, tastes, change in prices of related goods, etc. 4. List the factors change demand and shift the demand curve. Tell what happens to demand and the demand curve when there is an increase in the factor. As a demand factor changes in relation to a good or service, the demand curve will shift horizontally left or right. This is because a change in a demand factor results in a change in demand. At each and every price, the quantity demanded is affected. Tastes, Fashions and Preferences: As consumer tastes/fashions/preferences improve for a good or service, the demand will increase (and vice versa). This is often affected by advertising and marketing of products, or because of living conditions. Income: As consumer income increases, the demand for a good or service will increase (and vice versa). This is because they are able to buy more of a good or service as they have more disposable income. Price of a Compliment: As the price of a compliment increases, the demand for the respective good or service decreases (and vice versa). This is because the quantity demanded for the compliment decreases, so consumers require less of the other good or service to use in conjunction with the compliment. Price of a Substitute: As the price of a substitute increases, the demand for respective goods and services will increase (and vice versa). This is because the quantity demanded for the substitute will decrease as the price increases, and some consumers will turn to equivalent goods. 5. What leads to a decrease between quantity supplied and supply? 6. What are substitutes in production? One of two (or more) goods that use the same resource for production in an exclusionary manner. A substitute-in-production is one of two alternatives falling within the other prices determinant of supply. The other is a complement-in-production. An increase in the price of one substitute good causes a decrease in supply for the other. 7. Suppose that the number of companies selling computer software decreases. How do these changes affect the price and quantity of computer software? The fall in the price of a computer increases the demand for computer software and demand curve for computer software shits rightward. A decrease in the number of sellers decreases the supply of computer software and the shifts the supply curve of computer software leftward. The increase in demand and decrease in supply both raise the price, so the price definitely rises. The increase in demand increases the quantity and the decrease in supply decreases the quantity. Hence the net effect on the quantity in
