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Unit II: Supply, Demand, and Consumer Choice
Problem Set #2

1. EXPLAIN an experience or example that shows the “real world” application of each of the following. Define the terms in your own words and use examples that clearly demonstrate your understanding of each concept. a. The Law of Demand and the Law of Supply ( ____/5) Law of Demand: Downward slope, and inverse relation of price and quantity demand. When price of oranges goes up, the quantity demand will decrease, because of higher price, and substitutes. Law of Supply: Price and quantity has a direct relation, when price increases, quantity also increases. When the price of oranges increases, farmers …show more content…

Calculate the marginal utility and marginal utility per dollar for each unit of each good. ( ____/4) b. If you only had $100, EXPLAIN how you determine the utility maximizing combination of CDs and DVDs? ( ____/3) c. If your reward increased and your income constraint became $130, EXPLAIN how you determine the utility maximizing combination of CDs and DVDs? ( ____/3)

Demand and Supply Study Guide
|Demand |Supply |
|Definition of Demand: |Definition of Supply: |
|People willing and able to buy the product. |Amount of stuff people are willing and able to produce. |
|The Law of Demand: |The Law of