TUNKU ABDUL RAHMAN UNIVERSITY OF MANAGEMENT AND TECHNOLOGY
FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
SESSION 202501
ACADEMIC YEAR 2024/2025
ABBE1033 ECONOMICS
TUTORIAL 2: DEMAND THEORY
SECTION A: MULTIPLE CHOICE QUESTIONS
1. If the demand for low-cost apartments falls as income rises, then low-cost apartments
must be ______B________.
A. normal goods
B. inferior goods
C. substitute goods
D. complementary goods
2. As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are
______C______.
A. substitutes
B. normal goods
C. complements
D. inferior goods
3. ___D____ goods are goods where the demand is negatively related to income.
A. Complement
B. Substitute
C. Normal
D. Inferior
4. A movement along the demand curve (change in price) for apartments might be caused by
a change in ____A_C_____.
A. consumers’ incomes
B. consumers’ tastes and preferences
C. the price of the apartments
D. the price of single-storey link houses (not the good itself) its change of demands
5. The law of demand states that ______A________.
A. price and quantity demanded are inversely related
B. the larger the number of buyers in a market, the lower will be product price
C. price and quantity demanded are directly related
D. consumers will buy more of a product at high prices than at low prices
6. A "drop in the quantity demanded" means that ______C________.
A. the demand curve has shifted to the right
B. the supply curve has shifted to the left
C. price of good X has risen and consumers, therefore, want to purchase less of the good
X
D. given supply, the price of the good can be expected to rise
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7. A "decrease in demand" means that _____A_________.
A. the demand curve has shifted to the left
B. price of good X has declined, and consumers want to purchase more of the good X
C. the demand curve has shifted to the right
D. the price of the good can be expected to increase, assuming supply stays constant
8. If potential buyers of good X expect the price of good X will soon fall, then the current
____C______.
A. demand for good X will rise
B. demand for good X will remain unchanged.
C. demand for good X will fall.
D. quantity demanded of good X will fall.
SECTION B: DIAGRAM DRAWING AND ESSAY QUESTIONS
Question 1
Using appropriate diagrams, differentiate between ‘a change in demand’ and ‘a change in
quantity demanded’. (10 marks)
A change in demand is defined as a shift in demand curve. If there is increase in demand then
shift the demand curve rightwards. If there is and decrease in demand then we will shift the
demand curve leftwards. The factors that will effect this happen is income, taste and
preferences, price of related goods, number of buyers, and expectation of future price.
A change in quantity demanded refers to movement along the same demand curve. If the
price increase, the quantity demanded will decrease, this is shown by the upwards movement
from point A to B along the same demand curve. Inversely, if the price decrease, then the
quantity demanded will increase. This is shown by the downward movement from point B to
A along the same demand curve. The factor that causes this happens is the price of the good
itself or it’s own price
Question 2
Distinguish between normal and inferior goods. Give an example for these TWO (2) types of
goods. (10 marks)
Normal goods refer to a good for which demand rises as the income increases where demand
falls as the income decreases. There is a direct relationship between income and demand.
Inferior good are the low quality good where when our income increases, the demand
decrease. On the other hand, when our income decrease, then the demand will increase. It is
an inversely relationship between the price and income.
For example, John cycles to work every day. When his income increases, he goes to work by
car. From this statement, bicycle is an inferior good while car is a normal good. (4 marks)
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Question 3
Using an appropriate diagram, explain any THREE (3) factors that shift the demand curve
rightward. (8 marks)
-Change in income
For normal goods, demand increase when income decrease where for inferior goods, demand
increase when income decrease.
-Change in consumer preference
Demand increase when consumer’s preference is in favour of the product.
-Expectation of future price
Demand increase when consumer expect the price of goods will increase in future.
Question 4
Pepsi and pizza are complements because they are often consumed together. Using relevant
diagrams, explain what happens to the market of Pepsi and pizza if the price of Pepsi
increases. (10 marks)
If the price of Pepsi increases, then the quantity demanded of Pepsi will decrease. Therefore,
it will cause an upward movement from point A to point B. The demand of the pizza will also
decrease. It will cause a shift to leftwards from DD1 to DD2.
When the price of Pepsi increases, then the quantity demanded will decrease. Therefore, the
demand of pizza will drop.
Complements are goods used jointly in consumption. Therefore, when the price of Pepsi
increases, the demand for pizza decreases.
Question 5
Popeye’s income declines, and as a result, he buys more spinach.
Based on the statement above,
(a) Explain whether the spinach is an inferior or a normal good. (6 marks)
Normal goods are the goods that when income increase, demand increase. When
income decrease, demand decrease. Inferior goods are the goods that when income
increase, demand decrease where income decrease, demand increase. (4marks)
Spinach is an inferior good because when Popeye’s income declines, he buys more
spinach. (2 marks)
(b) Using a relevant diagram, explain what happens to the demand curve for spinach.
(4 marks)
The curve for spinach shifts to the right from D1 to D2 due to the increase in demand.
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Question 6
(a) Explain whether a change in consumers’ preferences of Cola lead to a movement along
the demand curve of Cola or a shift in the demand curve of Cola. (4 marks)
A change in consumers’ preference of Cola lead to a shift in the demand curve of Cola
(2 marks). If the consumers preference in favour of cola, then demand will increase and
shift rightward. If the consumer shifts away preference from cola, demand of cola will
decrease and shit leftwards. (2 marks)
(b) Does a change in price of laptop lead to a movement along the demand curve of laptop
or a shift in the demand curve of laptop? Explain. (4 marks)
A change in price of laptop leads to a movement along the demand curve of laptop. (2
marks). If the price of laptop increases then quantity demanded will decrease. This
will cause an upward movement in the demand curve. If the price of laptop decreases,
then quantity demanded will increase. This will cause a downward movement in the
demand curve.
