Economics- Chapter 4
Law of demand
When a goods price is lower, consumers will buy more of it
Substitutes
Goods used in place of one another
Inferior goods
Goods whose demand falls as consumer income increases
Normal goods
Goods whose demand increases as consumer income increases
Example of a substitute good
Hamburger for steak
Demand curve
A graphical representation of s demand schedule
Demand schedule
A table that lists the quantities of a good a person will buy at each price that may be offered in the market
Market demand schedule
A table that lists the quantities of a good demanded by all consumers at each price that may be offered in the market
Ceteris paribus
All other things held constant
What condition must exist to make a demand curve accurate?
As long as ceteris paribus is true
How are consumer tastes and advertising related
Companies spend money on advertising because they hope it will increase the demand for that good
Explain how the baby boom generation affected demand for certain goods
Demand moved along with that group and its needs as they grew up
Inelastic
Demand that is not very sensitive to price changes
Elastic
Demand that is very sensitive to a change in price
Unitary elastic
Demand whose elasticity is exactly equal to 1
Complements
Goods that are bought and used together
How does consumer income affect the demand for normal and inferior goods?
Increase in income causes demand for inferior goods to fall
Explain how demand for a good can affect demand for a related good
Increase the substitute goods
Elasticity of demand
Measure of how consumers respond to price changes
Income effect
The change in consumption resulting from a change in real income
How does consumer expectation affect demand for certain goods?
The current demand for a good is positively related to its expected future price
What happens to a demand curve when there is a change in factors that can affect consumers decisions about purchasing the good?
The entire demand curve shifts