Chapter 3: Nature of Demand
total revenue
(total receipts) the total income that a business receives from selling its products
demand curve
a way to show the relationship between the price of a product and the quantity demanded
quantity demanded
amount of a good or service that a consumer is willing and able to buy at each particular price during a given time period
demand
amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period
income effect
any increase or decrease in consumers' purchasing power caused by a change in price
diminishing marginal utility
as more units of a product are consumed, the satisfaction received from consuming each additional unit declines
demand schedule
schedule that lists the quantity of goods that consumers are willing and able to buy at a series of possible prices
the passage of time allows factors other than price to
shift the entire demand curve
purchasing power
the amount of money or income that people have available to spend
elasticity of demand
the degree to which changes in a good's price affect the quantity demanded by consumers
substitution effect
the tendency of consumers to substitute a similar, lower-priced product for another product that is relatively more expensive
elastic demand
when a small change in a good's price causes a major, opposite change in the quantity demanded
if a firm lowers the prices of a good with elastic demand there will be a
Large increase in the quantity supplied
perfectly inelastic supply
Producers cannot increase supply regardless of price
inelastic demand
change in price has little change or impact on the quantity supplied
3 major determinants of demand
consumer tastes and preferences, market size, consumer expectations
market size
decisions by private companies, governments, technology, income, prices of related goods
determinants of demand
factors that shift the entire demand curve of a product to the right or to the left instead of simply causing movement along the old demand curve
complementary goods
goods that are commonly used with other goods (ex. paintbrushes and paint)
substitute goods
goods that can be used to replace the purchase of similar goods when prices rise
law of demand
inverse relationship between price and quantity demanded
consumer expectations
make purchase with expectation of future pay
nonprice determinants of demand
market size, income, and prices of related goods
generic products
nonbrand-name products
three factors that affect market size
private business decisions, government policy, and new technology
change in any of the determinants of demand can
produce an entirely new demand curve for a market
