Ch. 4: Demand and Elasticity

How does a person's perception of a good as a necessity or a luxury affect his or her purchase of it?

A good that is perceived as a necessity will be purchased even if the price rises.

A restaurant owner has not changed menu prices in a year. One month ago, the owner noticed that sales for all lunch items had fallen by 50 percent. Which of the following most likely caused the demand curve to shift? -A local newspaper praised the restaurant's food. -Gas prices decreased. -Area population increased. -A nearby factory shut down.

A nearby factory shut down.

How does the price range affect the elasticity of demand for a product?

Demand for a good can be inelastic at a low price, but elastic at a high price.

What effect does the availability of many substitutes have on the elasticity of demand for a good?

Demand is elastic.

If prices rise but income stays the same, what is the effect on the quantity demanded?

Fewer goods are bought.

ow does elasticity affect a company's pricing policy?

If demand is elastic at the current price, the company knows that an increase price would reduce total revenues.

How can expectations about the future change consumer behavior?

Immediate demand for a good will rise if its price is expected to rise.

Why is demand for milk inelastic?

It is considered a necessity, not a luxury.

What does it mean when you have demand for a good or service?

You are willing and able to buy the good at the given price.

How might advertising lead to a shift in the demand curve?

by helping to create fads and trends

Owners of digital cameras have to buy memory cards in order to use the cameras. Cameras and memory cards are

complements

Businesses often use information such as age, income level, and occupation to sell products to certain groups of people. Such statistical data are called

demographics

The substitution effect and the income effect describe

factors that influence consumer buying choices.

What does elasticity of demand measure?

how buyers will cut back or increase their demand when price rises or falls

If the elasticity of demand for a good at a certain price is less than one, then the demand is

inelastic

Which of the following products has inelastic demand? -a particular soft drink -medicine -steak -Main Ideas -candy bars

medicine

Due to an increase in her rent, Isa needs to cut back her spending on other items. Which of the following types of goods will Isa consume less of?

normal goods

Cruz likes to chew one piece of sugarless gum each day. The cost of gum is only a tiny fraction of his weekly budget. The company that makes his favorite gum doubles its prices. In response, Cruz will probably -pay the doubled cost. -buy a cheaper brand. -give up chewing gum. -try many different brands.

pay the doubled cost.

If you create a demand schedule for an individual and for a market for the same product, what will remain the same in both schedules?

prices of the good or service

Which of the following is the best example of a good that has inelastic demand? -diamond -movie ticket -boat -salt

salt

A music store holds a half-price sale on all CDs. During the sale, people buy more CDs than usual. What does this event show?

the law of demand

Why does an economist create a market demand schedule?

to predict how all people will change their buying habits when prices change

Businesses multiply the price they charge for a good by the quantity sold to calculate

total revenue