2: Demand

What are reasons the demand curve is downward sloping?

1. Diminishing marginal utility 2. Income Effect 3. Substitution Effect

What are two characteristics of the income effect?

1. It works in the same direction as the substitution effect for normal goods. 2. It refers to the change in the demand for a good caused by a change in a consumer's purchasing power.

What are the four categories of resources?

1. Land 2. Labor 3. Capital 4. Entrepreneurial Ability

What does the horizontal summation of individual demand curves do?

It gives the market demand curve.

n understanding and analyzing "market demand," we focus on how much all buyers are:

willing and able to buy at different prices.

A demand curve and demand schedule express information about the:

willingness and ability to purchase a good.

What is this an example of?: Suppose the price of burritos at Jack's Burrito Shack fell from $7.00 to $6.00 and the quantity of burritos purchased rose from 25 per hour to 30 per hour.

Law of Demand

Consider a consumer who buys cookies and ice cream for snacks. Assume that the price of ice cream increases. Which of the following is an example of the substitution effect?

As the price of ice cream increases, ice cream becomes relatively more expensive than cookies, so the consumer will buy more cookies and less ice cream.

Can the demand curve be a straight line, a nonlinear curve, or both?

Both

The demand curve for a normal good is downward sloping because of what 3 things?

1. When consumers purchase substitutes, the quantity demanded of the good falls. 2. As prices rise, the purchasing power of each dollar earned falls, and consumers are willing and able to buy less of a good. 3. The benefit of consuming more of a good falls with each additional unit, so the price consumers are willing and able to pay also falls with increased consumption.

What id the definition of a change (shift) in demand?

A change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a righ

What is the definition of movement along the demand curve?

A change in the quantity of a good, service, or resource demanded due to a change in its price. Graphically this change is represented as a movement along an existing demand curve.

What is the definition of a Normal Good?

A good for which there is a direct relationship between the demand for the good and income. For normal goods, an increase in income increases demand, and a decrease in income decreases demand: a good with a positive income elasticity of demand.

What is a Demand Curve?

A graphical representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant.

How is a decrease in demand represented on a graph?

A leftward shift of the demand curve.

What is any place where, or any mechanism by which, buyers and sellers interact to trade goods, services, or resources

A market

What is the Law of Demand?

A principle in economics that states that as the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa, all else held constant.

How is an increase in demand represented on a graph?

A rightward shift of the demand curve.

What is a Demand Schedule?

A tabular representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant.

What is the definition of a Good?

A tangible product or action that consumers, firms, or governments wish to purchase.

Which of the following can both increase and decrease demand depending on the type of good?

An increase in income increases the demand for normal goods and decreases the demand for inferior goods.

What is an example of the Substitution Effect?

An increase in the price of one good, service, or resource has on the demand for another.

What is the definition of a Service?

An often intangible product or action that consumers, firms, or governments wish to purchase.

What is the definition of a Market?

Any place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources.

A change in quantity demanded can be described as:

a movement along the demand curve that results from a change in the good's own price.

A new health study was released promoting the benefits of broccoli. As a result, consumer perception of broccoli improves. How will this event change the market for broccoli?

Demand for broccoli will increase at each price.

Suppose goods A and B are complements. If the price of good A increases, what happens to the demand for good B?

Demand shifts to the left.

If consumer preference for cooking at home increases, how will this impact the market for groceries?

Demand will increase at each price.

When eating pizza, you value the first, second, third, and fourth slices of pizza at $10, $7, $5, and $3, respectively. What is this decrease in the value you place on each additional slice, called?

Diminishing marginal utility.

What is the definition of Complements?

Goods, services, or resources that are used or consumed with one another.

What is the definition of Substitutes?

Goods, services, or resources that are viewed as replacements for one another.

Because of diminishing marginal utility, what is the benefit of consuming more of a good?

It falls with each additional unit, so the price consumers are willing and able to pay falls with increased consumption.

What is the definition of Buyers?

Market participants who seek to obtain goods, services, and resources.

What is any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services?

Resource

An increase in the price of product B leads to an increase in the demand for product C. This indicates that products B and C are:

Substitute goods.

What is the definition of Expectations?

The anticipation by individuals and firms of costs and benefits that lie in the future.

What are two ways to show the overall relationship between the price of a good and the quantity demanded for the good?

The demand curve and the demand schedule.

What best describes the demand curve for most goods and services?

The demand curve is downward sloping.

Suppose that you only eat hot dogs on a hot dog bun and you never eat hot dog buns without a hot dog. If the price of hot dog buns increases:

The demand for hot dogs decreases.

What displays the demand for a product in a table, showing the different prices and the corresponding quantities demanded?

The demand schedule.

What is the Income Effect?

The effect that a change in the price of a good, service, or resource has on the purchasing power of income.

What is the Substitution Effect?

The effect that a change in the price of one good, service, or resource has on the demand for another.

What happens when a nonprice determinant of demand changes?

The entire demand curves shifts.

What is the definition of resources?

The inputs used to produce goods and services; also known as factors of production.

What determines prices and quantities traded in a market?

The interaction of buyers and sellers in a market.

What is the overall or total demand for a good, service, or resource ?

The market demand.

What is the definition of a Diminishing Marginal Utility?

The negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time.

What is the definition of Market Demand?

The overall, or total, demand for a good, service, or resource. It represents the horizontal summation of the quantities demanded by individuals, firms, states, or even nations at each price over a fixed time period, all else held constant.

What is the definition of Tastes and Preferences?

The perception of the desirability associated with consuming a good, service, or resource.

What is the definition of Quantity Demanded?

The quantity of a good, service, or resource that consumers are willing and able to buy at a given price.

What is the definition of an Inferior Good?

There is an inverse relationship between the demand for the good and income. For inferior goods, an increase in income decrease demand, and a decrease in income increases demand; a good with a negative income elasticity of demand.

When we graph the relationship between price and quantity demanded:

We call the result a demand curve, but demand curves are often drawn as straight lines.

What is an example of the Income Effect?

When prices decrease, the purchasing power of income increases and consumers are able to purchase more goods, services, or resources.

What does the size of the demand shift depend on?

Which nonprice determinant changes and how much it changes.

The change in the quantity of a good, service, or resource that consumers, firms, and governments are willing and able to buy due to a change in its price is called:

a change in the quantity demanded.

Suppose that your income remains unchanged, but the price of gasoline decreases. You can afford to purchase more gasoline, because there has been:

a downward movement along your existing demand curve, which is partially explained by the income effect.

Economists use the term "demand" to refer to:

a schedule of various combinations of market prices and quantities demanded.

A change in demand refers to:

a shift in the demand curve, either right or left.

The demand curve for a good displays:

all of the information found in the demand schedule for the good.

A change in consumer expectations on the price of a good will:

change demand for the good at each price.

When economists say that the demand for a product has decreased, they mean that:

consumers are now willing and able to buy less of this product at each possible price.

A change in ___________ (one word) occurs when a nonprice determinant of demand changes.

demand

When a demand curve shifts either to the right or to the left, we say there has been a change in ___________.

demand

Competition among suppliers tends to drive prices _______; competition among buyers tends to drive prices ______ .

down; up

Due to the inverse relationship between the price of a good and the quantity demanded for the good, we expect that the demand curve is:

downward-sloping.

The demand curve focuses entirely on the:

effect of a change in price on the quantity of the product consumed and holds everything else constant

Demand, demand curve, and demand schedule are three different ways of:

expressing information about the demand for a good, service, or resource.

Assuming a downward-sloping demand curve and a change in price, all else held constant:

generates a change in quantity demanded.

Suppose you have $18.00 to spend on coffee each week. When the price of coffee increases from $2.00 to $3.00, the purchasing power falls from 9 coffees per week to 6 coffees per week. This decrease in the quantity of coffee demanded illustrates the ___________ effect.

income

Suppose you have $30 to spend on tacos each week. When the price of tacos increases from $2.00 to $3.00, the purchasing power falls from 15 tacos per week to 10 tacos per week. This decrease in the quantity of tacos demanded illustrates the _____________ effect.

income

You are out on a Friday evening and decide to stop for an ice-cream cone. Usually you buy a single-scoop cone for $2. Tonight the shop is offering two single-scoop cones for $3, so you buy one for you and one for your friend. This scenario illustrates the:

income effect.

A small hatchback car, that is a normal good in a low-income country,

may be an inferior good in high-income countries.

Demand will increase if there are....

more buyers.

The income effect, the substitution effect, and diminishing marginal utility together explain:

why demand curves are downward-sloping.

Generally, in a perfectly competitive market,:

individuals do not directly influence the prices, but collectively all individuals have an effect on price.

Markets such as swap meets or garage sales are called _____ markets.

informal

You have just returned from seeing a movie with a friend and are relaxing at home. Another friend calls and asks whether you will watch the same movie with her. Though you enjoyed the movie, you are not interested in watching it again. This scenario is an example of the:

law of diminishing marginal utility.

In a market, buyers want to pay the _____ possible price and sellers want to charge the _____ possible price.

lowest; highest

The "all else held constant" assumption:

makes it possible to study how a change in only the price affects the quantity demanded.

The __________- (one word) demand represents the horizontal summation of individual demand curves.

market

In a world characterized by scarcity, the most reliant mechanism for allocating goods, services, and resources between competing uses is the ______________ mechanism.

market.

Tastes and preferences, the number of buyers, and buyer expectations are:

nonprice determinants of demand.

When we draw a demand curve for hamburgers, we focus only on the ____________ of hamburgers and the quantity of hamburgers demanded at each price.

price

Along a demand curve, all else is held constant except the good's own:

price.

Out of rationing mechanisms, such as prices, lotteries, first-come first-served arrangements, and contests, __________ tend to be the most efficient mechanism for allocating goods, services, and resources among competing users.

prices

One mechanism for allocating goods, services, and resources among competing users is reliance on:

prices.

Prices tend to be an efficient mechanism for allocating goods, services, and resources among competing users by:

providing important feedback to consumers and producers.

When there is a movement along a demand curve, we say that there has been a change in:

quantity demanded.

According to the law of demand, lower prices lead to a higher quantity demanded. As a result, the demand curve:

should slope down.

The terms "normal" and "inferior" are:

subjective to the incomes of people.

An increase in the price of a good's __________ will shift the demand for the good to the right.

substitute

The price of a _________ of a good is one of the nonprice determinants of its demand.

substitute

Your favorite candy bar is NutYum. When it is on sale for $1 per bar, you buy one bar. When a bar of NutYum is selling at its regular price of $2, you buy the generic store brand instead. This scenario is an illustration of the:

substitution effect.

What would most likely increase the demand for gasoline?

the expectation by consumers that gasoline prices will be higher in the future.

Other things held constant, the demand curve will shift when:

the nonprice determinants of demand change.

Whether a good is normal or inferior depends on:

the preferences of all consumers in the aggregate.

When two goods are substitutes:

the price of a good and the demand for its substitute are positively related.

As the price of a good, service, or resource rises:

the quantity demanded will fall.

How much a nonprice determinant changes (and which one changes) will ultimately determine:

the size of the shift in the demand curve.

As a result of a decrease in the price of online streaming movies, consumers download more movies online and buy fewer DVDs. This is an illustration of:

the substitution effect.

When graphing a demand curve, we place price on the _______ and quantity demanded on the _______.

vertical axis; horizontal axis