Exercise Set 3
THE DEMAND CURVE


I. Objectives

  1. To obtain the slope and intercepts of a demand curve
  2. To see what causes a movement along the demand curve
  3. To see what causes a demand curve to shift
  4. To understand the parameters of the demand curve

II. Data


III. Questions

In the questions that follow, let a = 24, b = 4.
  1. Sketch Jay Leno's demand curve.
    1. Indicate the two intercepts and the slope.
    2. Explain how they are obtained.
  2. Suppose the price of coffee is $20/lb. At this price, what is the quantity demanded by Leno?
  3. Suppose the price of coffee falls from $20/lb to $16/lb.
    1. Ceteris paribus, how will Leno's quantity demanded change?
    2. Does the price change result in a movement along the curve or a shift of the curve? Explain.
  4. Increase the value of a by 10%.
    1. Sketch the new demand curve, indicating its intercepts and slope.
    2. Has there been an increase in demand, or a fall in demand?
  5. Which of the following is consistent with the increase in a? (Pick all correct answers.)
    1. Leno's income has risen.
    2. The price of tea has risen.
    3. The price of cream (a complement) has decreased.

Video: Solution to Section III Questions at https://use.vg/DIc6Xt