econ chapter 4

What is elasticity of demand?

A measure of how consumers respond to price changes

How does knowing the elasticity of demand for a good help entrepreneurs?

It allows entrepreneurs to look for substitutes for goods that presently have no good options.

What does a market demand schedule show?

It shows the quantities demanded at various prices by all consumers in the market.

Under the substitution effect, what will happen when the price of a good drops?

The consumption of the first good increases and the consumption of other goods decreases.With a drop in price of the first good, consumers may now substitute the first good for other alternatives- causing the first good to rise in demand.

Suppose demand for a product is elastic at a given price. What will happen to the company's total revenue if it raises the price of that product?

The total revenue may be reduced if price is increased b/c of the factors of demand(substitutions, limited budget or perception of goods as a luxury)

List at least three good that could be considered substitutes for movie tickets.

Concert tickets, ball game tickets, passes to the zoo

If demand for a good is inelastic, how will a drop in price affect demand for the good?

It will remain relatively the same

How are normal goods and inferior goods different?

Normal goods are good consumers demand more of when their incomes increase; Inferior goods are goods that consumers demand less of when their incomes increase.

Describe the differences between substitution effect and the income effect.

Substitution effect is when consumers react to an increase in a good's price by consuming less of that good and more of a substitute good; Income effect is the change in consumption that results when a price increase causes real income to decline

What will happen to the demand for its substitute if the demand for a good increases?

The demand for its substitute will decrease

Does a change in the price of a good cause the demand curve to shift?

Yes, a demand curve is only accurate as long as price remains the same- a shift in the demand curve means that at every price, consumers buy a different quantity than before.= changes in demand

What changes might make demand for gasoline more elastic over time?

Car buying habits, public transportation and location of home and work

What kinds of changes cause shifts in the demand curve?

Consumer income, consumer expectations, population, demographics and consumer tastes & advertising.

How does consumers' income affect the demand for normal goods?

Consumers demand more goods when their incomes increase. increased income leads to buying more of a normal good at any price= causes an increase in demand. A fall in income would lead to a decrease in demand.

According to the law of demand, what will happen when the price of a good increases?

Consumers will buy less and demand decreases.

If demand for a good is elastic, what will happen when the price increases?

Consumers will buy much less of a product

Name at least three goods that could be bought as complements to hamburgers.

Hamburger buns, lettuce, tomatoes, ketchup

If a demand for a good increases, what will happen to the demand for its complement?

the demand for its complement will also increase

What 2 qualities make up demand?

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

What is a demand schedule called when it is represented as a graph?

A demand curve

How is the term ceteris paribus assumption related to demand curves?

A demand curve is accurate only as long as there are no changes other than price that could affect a consumer's decision. When we drop the ceteris paribus rule and allow other factors to change, we no longer move along the demand curve.

Describe how a market demand schedule or a market demand curve would be useful to a business owner.

A market demand schedule shows the quantities demanded at various prices by all consumers in the market= the schedule also shows the law of demand. A market demand curve can predict how people will change their buying habits when the price of a good rises and falls= cannot predict changing market conditions.

Name three factors that determine a good's elasticity.

availability of substitutes, relative importance and necessity vs. luxuries