Chapter 4

Law of Demand

Consumers will buy more of a good when its price is lower and less when the price is higher.

Best time to increase bathing suit prices is in the summer

Demand is high and people want them/need them for ocean and pools

Demographics

the statistical characteristics of populations and population segments, especially when used to identify consumer markets

Complements

two goods that are bought and used together

complements

two goods that are bought and used together

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

normal good

- a good that consumers demand more of when their incomes increase

total revenue

- total amount of money a company receives by selling goods or services

Demand schedule

A table that lists the quantity of a good a person will buy at various prices in a market

Why is it important for business to understand the demographics of their markets?

Demographics refers to statistical characteristics of a population, such as age, race, gender, occupation, and income level. Consumers with different demographic characteristics may have different demands for goods. If businesses understand the demographics of their markets, they can adjust their products or advertising to better appeal to the demand of these markets.

Substitutes

goods used in place of one another

Consumption of hotdogs drops, what do hotdog bun companies do to react to development?

The bakeries should expect demand for hot dog buns to fall because hot dogs and buns are complementary products. In response, they should produce fewer hot dog buns.

Income Effect

The change in consumption that results when a price increase causes real income to decline.

Ceteris Paribus -

a Latin phrase that means "all other things held constant"

inferior good

a good that consumers demand less of when their income increases

elasticity of demand

a measure of how consumers react to a change in price

Inelasticity

describes demand that is not very sensitive to price changes

Elastic -

describes demand that is very sensitive to a change in price

unitary elastic

describes demand whose elasticity is exactly equal to 1

Substitutes

goods that are used in place of one another

Demand

the desire to own something and the ability to pay for it