economics test (demand)

3.2: How does ceteris paribus relate to demand?

A demand curve is accurate as long as the ceteris paribus assumption is true.

3.2: What does a shift in the demand curve indicate about demand for a particular good?

At every price, consumers buy a different quantity than before.

3.1: Demand is more than just the desire to buy something. What else does it require?

Be able to pay for it. Explanation: Without the ability to pay for it, consumers would not be able to purchase the product. No matter how bad they desire to own it.

3.2: Give an example of how businesses use demographic information.

Because of the growth of the Hispanic American populations, firms will devote more of their resources to producing goods and services demanded by those consumers.

3.1: According to the law of demand, what would you expect to happen in the car market as the price of automobiles goes up?

Demand would go down Explanation: As prices go up, fewer people are able to afford it. They will tend to feel poorer and it will result in them using the substitution effect or income effect.

3.1: In order for demand for a good to be present, what two conditions must be present?

Desire to own something and the ability to pay for it. Explanation: If you don't have both of these, demand could not be present because consumers would have no reason or way to purchase the product.

3.1: What is a market demand curve?

Graphic representation of a demand schedule.

3.1: Because the cost of a taxi ride increased, Martina decided to start packing a lunch instead of ordering out from a nearby restaurant. Which economic principle does this demonstrate?

Income Effect Explanation: Instead of spending more money on food from restaurants, Martina starts saving money by packing her lunch. This way she can have more money for the Taxi.

3.1: If you buy less clothing because the price of clothing at your favorite store has gone up, what has happened?

Income Effect Explanation: The price of clothing has gone up. Instead of substituting it for a cheaper good, you decided to buy less of the product to save money.

3.3: Why does a firm need to know whether demand for its product is elastic or inelastic?

It can help the firm reach the greatest revenue level.

3.2: How do non-price determinants affect demand?

Non-price determinants shift the demand (either up or down) Explanation: Income, consumer expectations, population demographics, and consumer tastes and advertising are all reasons for demand to increase or decrease.

3.3: What factors affect elasticity of demand?

Several non-price determinants.

3.1: What does an individual demand schedule do?

Shows how changing prices affect the quantity demanded.

3.1: When he saw that the price of the car model he had planned to buy had increased drastically, Tino decided to purchase another brand instead. Which economic principle does this demonstrate?

Substitution Effect Explanation: Because it's when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

3.3: How do economists calculate elasticity?

Take the percentage change in the quantity of the good demanded, and divide the number by the percentage change in the price of the good.

3.2: How does a change in demand relate to a demand curve?

The demand curve will shift according to the current demand.

3.2: What effect does a rise in income have on demand?

There would be a rise in demand. Explanation: As income rises, consumers demand more normal goods.

ceteris paribus

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

inferior goods

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

demand curve

a graphic representation of a demand schedule

elasticity of demand

a measure of how consumers react to a change in price

market demand schedule

a table that lists the quantities demanded of a good at various prices by all consumers in the market

demand schedule

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

law of demand

consumers will buy more of a good when its price is lower and less when its price is higher

inelastic

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

non-price determinants

factors other than price that can affect demand for a particular good or service

substitutes

goods that are used in place of one another

demand

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

income effect

the change in consumption that results in response to changes in price

demographics

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

total revenue

the total amount of money a firm receives by selling goods or services

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