Answer Happy

Question 5 [16] 5.1 By using a relevant diagram, illustrate and explain how the market demand curve is derived. A brief explanatory discussion of the graph is required with reference to price and quantity. (4) 5.2 Explain how an increase in a person's income can lead to lower consumption of an inferior good such as hamburgers and higher consumption of, say, steak. Use a graph to illustrate your explanation. Tip: On an indifference diagram, show what the shape of the income consumption curve is for an inferior good and then briefly explain how an increase in a person's income can lead to lower consumption of one of the two goods being purchased. (7) 5.3 Explain what the income consumption curve is in terms of individual and market demand. (2) 5.4 Define an isoquant and then explain what decreasing returns of scale implies. What happens to the isoquants on an isoquant map in such an instance? (3)