Questions for Review 1. Law of Demand What is the law of demand? Give two ex- 5. Income Effects When moving along the demand curve, in- amples of how you have observed the law of demand at work come must be assumed constant. Yet one factor that can cause in the "real world." How is the law of demand related to the a change in the quantity demanded is the "income effect." demand curve? Reconcile these seemingly contradictory facts. 2. Changes in Demand What variables influence the demand for 6. Demand If chocolate is found to have positive health benefits, a normal good? Explain why a reduction in the price of a nor- would this lead to a shift of the demand curve or a movement mal good does not increase the demand for that good. along the demand curve? 3. Substitution and Income Effects Distinguish between the sub- 7. Supply What is the law of supply? Give an example of how stitution effect and income effect of a price change. If a good's you have observed the law of supply at work. What is the rela- price increases, does each effect have a positive or a negative impact on the quantity demanded? tionship between the law of supply and the supply curve? 4. Demand Explain the effect of an increase in consumer income 8. Changes in Supply What kinds of changes in underlying con- on the demand for a good. ditions can cause the supply curve to shift? Give some examples and explain the direction in which the curve shifts