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