Economics Chapter 4: Demand

Unit Elastic

When the percentage change in price and quantity demanded are the same

Microeconomics

the study of the economic behaviors and decisions of small units, such as individuals and businesses

Demand

the willingness to buy a good or service an the ability to pay for it

Substitutes

Goods and services that can be used in place of each other. If the price of a substitute drops it will cause people to buy the substitute instead. If the price of a substitute rises it will increase demand of the original.

Complements

Goods that are used together so a rise in demand for one increases the rise in demand of the other.

Substitution Effect

a change in the amount that consumers will buy because they buy substitute goods instead

Demand Curve

a graph that shows how much of a good or service an individual will buy at each price. Graphically shows the data from a demand schedule

Income Effect

the change in the amount that consumers will buy because the purchasing power of their income changes

Total Revenue Test

a method of measuring elasticity by comparing total revenues. If total revenue increases after the price drops, then demand is considered elastic. If total revenue decreases after the price is lowered, demand is considered to be inelastic.

Change in Quantity Demanded

an increase or decrease in the amount demanded because of change in price

Change in Demand

occurs when something prompts consumers to buy different amounts at every price

Consumer Expectations

Your expectations for the future can affect your buying habits today.

Income

If a consumers income rises they tend to demand more normal goods and less inferior goods. If a consumers income decreases they tend to demand less normal goods and more inferior goods.

Total Revenue

The amount of money a company receives for selling its products.

Inelastic

Quantity demanded changes little as price changes

Elastic

Quantity demanded changes significantly as price changes

Demand Schedule

a table listing of how much of an item an individual is willing to purchase at each price

Vera Wang

fashion designer who made a fortune starting a company designing high end wedding gowns for the rich and famous

Market Demand Curve

A graph that the quantity that all consumers are willing and able to buy at each price. Graphically shows the data from a market demand schedule

Luxury

A luxury is something that you desire but that is not essential to your life, such as a plasma television.

Elasticity of Demand

A measure of how responsive consumers are to price changes

Necessity

A necessity is something you must have,such as food or water.

Consumer Tastes

If a product becomes popular its demand increases. If a product looses popularity demand decreases.

Factors That Affect Elasticity Demand

The three factors that affect elasticity demand are: Substitute Goods or Services, Proportion of Income, and Necessities Versus Luxuries.

Market Size

Usually has a corresponding effect on demand. If Market Size increases demand increases if Market size decreases demand decreases.

Inferior Goods

goods that consumers demand less of when their income rise

Normal Goods

goods that consumers demand more of when their incomes rise

6 Factors That Cause a Change in Demand

income, market size, consumer expectations, consumer taste, substitute goods, complementary goods

Law of Diminishing Marginal Utility

states that the marginal benefit of using each additional unit of a product during a given period will decline

Law of Demand

states that when prices go down, quantity demanded increases. When prices go up, quantity demanded deceases

Market Demand Schedule

table listing of how much an item all consumers are willing to purchase at each price