Law of demand: Practice Questions

According to the Law of Demand, a change in the quantity demanded of a good is primarily caused by a change in its:

A private golf club offers membership. Members pay a fixed annual lump-sum membership fee (\(F\)) and a marginal green fee (\(P_G\)) for each round of golf played. Non-members pay a much higher green fee per round (\(P_{NM}\)) but no annual lump-sum fee. Suppose the club reduces the annual lump-sum fee \(F\) substantially, while \(P_G\) and \(P_{NM}\) remain constant. Ceteris paribus, which of the following is TRUE regarding a current club member’s quantity demanded of golf rounds?

Note: Assume the member plays a positive number of rounds per year (\(Q > 0\)) and that golf rounds are a normal good.

According to the law of demand, when the price of a good increases, its quantity demanded decreases, ceteris paribus. Which of the following is the most likely reason for this observation?

State the Law of Demand. What crucial assumption must be held constant for this law to accurately describe the relationship between price and quantity demanded?

Suppose Good A is a normal good and Good B is a complement to Good A. If the price of Good B increases while consumer income decreases, explain the combined effect on the demand curve for Good A.

Assume the market for fresh apples is initially in equilibrium. A severe drought in major apple-growing regions reduces the current harvest significantly. Simultaneously, a popular health campaign encourages daily apple consumption, increasing consumer preference. With reference to the laws of demand and supply, explain the unambiguous effect on either the equilibrium price or equilibrium quantity of fresh apples.

The market for freshly baked artisanal bread is known for its unique production process and consumer appeal.

(a) State the Law of Demand and the Law of Supply for freshly baked artisanal bread. (2 marks)

(b) Explain the difference between a 'change in quantity demanded' and a 'change in demand' for artisanal bread. Provide one factor (other than the price of artisanal bread itself) that would cause a 'change in demand' for artisanal bread and explain its effect. (3 marks)

A metropolitan public museum initially charges a high entrance fee of \(P\) per visit, with no annual membership. Recently, the museum changed its pricing structure to encourage frequent visitation: it introduced an annual membership fee of \(L\) which grants unlimited visits for a year, while the per-visit entrance fee is reduced to zero. Assume that the prices of all substitutes remain constant.

(a) State the Law of Demand. (1 mark)

(b) Explain, with reference to the concepts of full price and relative price, how the quantity demanded for museum visits per year is affected for an individual who buys the annual membership. (4 marks)

(c) Separately, suppose museum visits are considered a superior good. During an economic slowdown, many households experience a significant decrease in their income. Explain how this economic slowdown would affect the market demand curve for museum visits. (2 marks)