The law of demand says that when the price of something goes down people buy less...

The law of demand says that when the price of something goes down people buy less of it (and vice versa), all other things being equal. Such a change is referred to as an increase in quantity demanded and is shown by a movement down along a given demand curve. By contrast, an increase in demand is shown by a rightward shift in the entire demand curve.

1. Some people seem to believe that there are goods for which the law of demand is irrelevant, goods that people just “can’t do without.” Why do economists believe that the law of demand applies to all goods. (4)

2. Explain what would have to happen to each of the following in order for the demand for widgets to go up:

a. Consumer incomes (2)

b. Prices of other goods (2)

3. You hire a consultant to estimate the elasticity of demand for widgets, the product that your company produces and sells. When you receive the report, it indicates that the elasticity of demand for widgets is -0.6. Briefly explain what that means and how it would affect your firm’s pricing decision? (4)

Expert Solution

Rahul Sunny answered 2 years ago

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