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1. Explain the law of demand and its implications for
individual consumers. Provide an example to support your
answer.
Answer: The law of demand states that as the price of a
good or service increases, the quantity demanded
decreases, ceteris paribus. This means that consumers are
more likely to purchase a higher quantity of a good or
service when its price is lower. For example, if the price of
coffee increases, consumers may choose to switch to a
cheaper alternative, such as tea.
Rationale: This question assesses students' understanding
of the fundamental concept of the law of demand and its
relationship to consumer behavior.
2. Discuss the concept of elasticity of demand and its
relevance to individual consumers. Provide an example to
illustrate a situation of elastic demand.
Answer: Elasticity of demand measures the responsiveness
of quantity demanded to a change in price. When demand
is elastic, a small change in price leads to a proportionally
greater change in quantity demanded. For instance, for
luxury goods like designer handbags, consumers tend to be
very responsive to price changes and may decrease their
purchases significantly when prices increase.
Rationale: This question evaluates students' understandingÂ
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