Ch. 4 Demand

What are the 6 factors that change demand?

1) income 2) market size 3) consumer tastes 4) consumer expectations 5) substitute goods 6) complementary goods

How is the law of demand similar to and different from elasticity of demand?

According to the law, the rise in price will lead to decrease in demand and the fall in price will lead to increase in demand for a good and service.

What factors cause demand curves to shift?

Income, Preferences, Prices of Related Goods, Number of Buyers, and Future Price.

If the demand decreases the demand curve shifts _______________.

Leftward

What factor causes a change in quantity demanded?

Price

If the demand increases the demand curve shifts ________________.

Rightward

Explain what it means if demand increases.

When demand increases it refers to the shift of demand curve to the right

Is saying that demand has increased for a good the same as saying that buyers are buying more of the good?

Yes

Inferior Good

a good for which the demand falls as income rises and rises as income falls

Neutral Good

a good for which the demand remains unchanged as income rises or falls

Normal Good

a good for which the demand rises as income rises and falls as income falls.

Complement

a good that is consumed with another good

Market

a group of buyers and sellers of a particular good or service

Subsitute

a similar good

law of demand

as the price of a good increases, the quantity demanded decreases, and as the the price of the good decreases the quantity demand of the good increases.

unit-elastic demand

exists when the percentage change in quantity demanded is less than the percentage change in price

Does an increase in price necessarily bring about a higher total revenue?

no, b/c an increase in price results in decrease in quantity demanded

What happens to the demand curve for apples when people's income rises and apples are a normal good?

the demand curve will move to the right

What happens to the demand curve for apples when the price of peaches rises, when peaches are a substitute for apples?

the demand curve will move to the right

Margarine is a substitute for butter. What happens to the demand for margarine as the price of butter rises?

the demand for margarine will increase

The price of a good rises from $4 to $4.50, and as a result, total revenue falls from $400 to $350. Is the demand for the good elastic, inelastic, or unit-elastic?

the demand is elastic b/c the percent decrease in quantity demanded is greater than the percent change in price resulting in revenue loss

demand curve

the graphical representation of the law of demand.

what does the law of diminishing marginal utility have to do with the law of demand

the law of diminishing marginal utility is the reason for price rises and quantity demand falls and price falls, quantity demand rises.

quantity demanded

the number of units of a good purchased at a specific price

demand schedule

the numerical representation of the law of demand

elasticity of demand

the relationship between the percentage change in quantity demanded and the percentage change in price

demand

the willingness and ability of buyers to purchase a good or service

true or false? The law of demand says that as price rises, demand falls.

true

elastic demand

when the percentage change in the quantity demanded exceeds the percentage change in price

inelastic demand

when the percentage change in the quantity demanded is less than the percentage change in price