CH 3: Substitutes Everywhere: The Concept of Demand

Marginal means

"additional"

______ ______ employs data on price and the quantity the consumer is willing to purchase at each price

Demand analysis

Read a demand curve by taking a price and finding corresponding quantity. That is called the ______ _____.

Quantity Demanded.

The law of demand states that

an inverse relationship exists between the amount of anything that people want to purchase and the price they must pay.

In a world of scarcity, individuals incur trade-offs. Thus, economists developed the idea of ______.

demand

As price goes up, quantity demanded goes ____.

down.

If quantity demanded changes substantially as a result of a small change in price, demand is _______.

elastic.

Demand analysis

employs data on price and the quantity the consumer is willing to purchase at each price.

inelastic demand

price elasticity < 1

unit elastic

price elasticity = 1

elastic demand

price elasticity > 1

Elastic demand

prices and total receipts move in opposite directions

Inelastic demand

prices and total receipts move in the same direction

Trade-offs

the sacrifice of other goods and services we value.

Elasticity is influenced by:

time availability of substitutes proportion of one's budget spent on a good

The fact that goods and services are scarce entails ________.

trade-offs

As price goes ____, quantity demanded goes down.

up

Using the data, we can draw a chart where the _______ axis shows possible prices that might be charged; & the _______ axis shows quantity purchased at those prices.

vertical axis; horizontal axis

Elasticity

equals the percentage change in the quantity demanded divided by the percentage change in price.

Changes in the quantity demanded will be greater the _______ the time period allowed for adjustment.

longer

If quantity demanded changes very little as a result of a large change in price, demand is ______.

inelastic.

change in quantity demanded

is a movement from one point on a demand curve to another point on the same curve due to price

change in demand

is a shift in the entire curve itself and results from some non-price factor that makes households buy more or less at each price

Inflation

is an increase in the average money price of goods.

As the opportunity cost of an action increases, the chooser will tend to undertake ____ of that action.

less

Necessities are _____ elastic than luxuries.

less elastic

We make decisions based on expected ____ ______ versus _____ _____.

marginal benefits; marginal costs

The values that matter in economics are ______ values.

marginal values

Price elasticity of demand

measures consumer responsiveness to price changes.

As the opportunity cost of an action decreases, the user will tend to undertake ____ of that action.

more

All products become _____ elastic with time.

more elastic

The more substitutes a product has, the _____ elastic.

more elastic

The proportion of one's budget spent on an item (the more a product takes of your budget, the _____ elastic).

more elastic

Influences that can cause a change in demand for a good:

number of customers change in customer tastes change in income change in price of a substitute change in price of a complementary good change in the expected future price

Elasticity equals the percentage change in the _____ _____ divided by the percentage change in _____.

quantity demanded; price

A demand curve illustrates

the amount of a good that consumers plan to purchase at various given prices