Demand Vocabulary (Economy Chapter 4)

Demand Curve

a graph showing the quantity demanded at each and every price that might prevail in the market.

Demand Schedule

a listing that shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

Law of Demand

states that the quantity demanded at each and every price that might prevail in the market.

Demand

is a willingness to buy a product at a particular price.

Graphing elastic Demand

small change in price= large change in quantity demanded. Results in a "flatter" demand curve.

Graphing Inelastic Demand

small change in price= small change in quantity demanded. Results in "steeper" demand curve.

diminishing marginal utility

states that the extra satisfaction we get from using additional quantities of the product begins to diminish.

Microeconomics

the area of economics that deals with behavior and decisions making by smaller units, such as individuals and firms.

Market demand curve

the demand curve that shows the quantities demanded by everyone who is interested in purchasing the product,

marginal utility

the extra usefulness/satisfaction a person gets from acquiring one more unit of a product.

4 Factors of Elasticity 1. Availability of Substitutes - Plenty of substitutes means demand will be elastic. - Few substitutes means demand will be inelastic. 2. Necessity vs. Luxury - Luxury items- elastic - Necessities- Inelastic

3. Time Horizon - You have a longer time frame to adjust- elastic - You need it now- inelastic 4. Share of consumers's budget spent on a good or service - Large portion of your budget- elastic - Small portion of your budget- inelastic

Summary of the Elasticity Demand

Elasticity- demand is very sensitive to price change- ex. airline tickets for vacation travel- elasticity value is greater then 1.0- percentage change in quantity > percentage change in price. Unit elastic- demand is moderately sensitive to price changes- ex. soft drinks- elasticity value equals 1.0- percentage change in quantity = percentage change in price. Inelastic- demand is not very sensitive to price changes- ex. medicine- elasticity value is less than 1.0- percentage change in quantity< percentage change in price

Factors affecting demand

Main idea: There are a number of factors that will cause demand to either increase or decrease. Key Terms: Change in quantity demanded- a movement along the demand curve that shows a change in the quantity of the product purchased in response to a change. Income Effect- the change in quantity demanded because of a change in price that alters consumers' real income. Substitution Effect- the change in the quantity demanded because of the change in the relative price of the product. Change in Demand- something happens to cause the demand curve to change. People are now willing to buy different amounts of the product at the same prices. Substitutes- because they can be used in place of other products. Complements- other related objects.