Indifference Curve Analysis and Exceptions to the Law of Demand Quiz

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18 Questions

What are the factors assumed to be constant in drawing a demand curve according to the text?

All of the above

Why does the demand curve slope downward to the right?

Both income and substitution effects

If any change occurs in consumer income, what will happen to the demand schedule or curve?

It will need to be redrawn

Which analysis will be used to prove why the demand curve slopes downward according to the text?

Marginal utility analysis

In drawing a demand curve, what is assumed about the buyer's influence on commodity prices?

The buyer takes prices as constant

What effect causes an increase in quantity demanded when the price of a commodity falls?

Both income and substitution effects

What does the coefficient 'b' in a demand function indicate?

The change in quantity demanded resulting from a unit change in price

If the coefficient b1 is -5, what does this indicate?

An increase of 5 units in quantity demanded with a decrease in price

What is described by the law of demand?

The relationship between price and quantity demanded

According to the law of demand, what happens when the price of a commodity falls?

Quantity demanded rises

Which statement correctly describes the relationship between price and quantity demanded according to the law of demand?

Inverse relationship

What can accurately predict the demand for a commodity in future years?

Values of coefficients of various variables of the demand function

According to Veblen's theory of conspicuous consumption, how do some consumers measure the utility of a commodity?

By its price

In the Veblen effect, what happens to the prestige value of diamonds when their price decreases?

Decreases

How does the Veblen effect impact the demand for diamonds when their price rises?

Demand increases

Which economist is associated with the theory of conspicuous consumption and the Veblen effect?

Thorstein Veblen

What is one exception to the law of demand discussed in the text?

Giffen goods

How does Thorstein Veblen suggest some consumers view the utility of a commodity based on its price?

Higher price, higher utility

Test your knowledge on Hicks and Allen's indifference curve theory and exceptions to the law of demand, including the Veblen Effect. Explore the concepts of income and substitution effects along with goods that have Prestige Value.

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