# ECON1101 Study Guide - Quiz Guide: Ceteris Paribus, Marginal Utility, Demand Curve

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17 May 2018
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PRAC QU for quiz 2 (incl quiz 1)
State and Illustrate the law of demand in words. What causes the demand curve to be
negatively sloped?
The law of demand occurs when the quantity demanded of a good or service in a given time
period declines as the price rises, and increases as the price falls, ceteris paribus.
The law of downward sloping demand is based on the law of diminishing marginal utility.
The more supply of a good available, the less utility consumers derive from using it. As
supply of those same good increases, consumers will get less utility of each additional good
purchased.
The typical demand curve is graphed sloping downwards from left to right, illustrating the
same relationship between price and demand as stated in the law of demand as prices
increase, ceteris paribus, demand decreases. In a real multi-person economy, the graph
is a curve. However, in a simplified, hypothetical economy, the graph is straight line with
negative gradient. Price is plotted along the vertical axis and quantity is illustrated on the
horizontal axis. For example,
The substitution effect also causes the demand curve to be negatively sloped. The substitution
effect occurs when the change in the quantity of a good or service caused by a change in
price, results because of the change in price of a substitute. A substitute is a good that
consumers may choose to buy in place of another, such as butter and margarine, or tea and
coffee.
Explain the income and the substitution effect. What impact do they have on the demand
curve?
Both the substitution and income effect, where changes in the quantity of a good or service is
caused by a change in price impacts the demand of that particular good or service. Whilst the
substitution effect is related to price of substitutes, expanding or contracting the demand
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