Chapter 4 - Demand Worksheet, Sections 1-3
What type of movement happens on a demand curve when only price changes?
Change in quantity demanded
Law of Demand
Consumers buy more of a good when its price decreases and less when its price increases
What types of goods are elastic?
Goods that you buy less of after a small price increase; *usually a luxury or a substitute*
What types of goods are inelastic?
Goods that you will keep buying despite a price increase; *usually a necessity*
Substitutes
Goods used in place of one another
Why would a demand for a good be elastic at high price levels?
Higher prices means decreased quantity demanded.
Normal Goods
Goods that consumers demand more of when their income increases
Necessities
Goods that people will always buy, even when the price increases; usually inelastic
What does ceteris paribus translate to?
"All other things held constant"
Complements
2 goods that are bought and used together, and can affect each other's demand
How is a market demand schedule different from a demand schedule?
A *market* demand schedule shows the quantities demanded at each price by *all consumers* while a demand schedule shows just one person.
What does ceteris paribus mean in economics?
A change in price
Demand Curve
A graph of the relationship between the price of a good and the quantity demanded.
Elasticity of Demand
A measurement of how consumers react to a change in price
Demand Schedule
A table that lists the quantity of a good that a person will purchase at each price in a market
What would happen to your demand for inferior goods if your pay increased?
Buy in smaller quantities or not at all
In what direction will a demand curve always slope?
From the top of the y-axis to the right of the x-axis diagonally
What types of things had an increase in demand after World War 2 soldiers started families?
Baby clothes, baby food, books on baby care, etc.
If Nikes and Adidas are substitutes, how will the demand for Nike change if Adidas become more expensive?
Demand for Nike will increase
If soup and crackers are complements, how will the demand for soup change if crackers go on sale?
Demand for soup increases
According to the Law of Demand, what happens to demand when prices rise?
Demand goes down when prices goes up.
If you hear that the iPad you want will be more expensive is more expensive NEXT WEEK, how will that affect your demand today?
Demand today is higher
If you hear that a car you want is going on sale NEXT WEEK, how will that affect your demand today?
Demand today is less
What does the curve do when ceteris paribus is dropped?
Doesn't move along the demand curve; entire demand curve shifts
Inferior Goods
Goods that consumers demand less of when their income increases
Do luxury goods have elastic or inelastic demand?
Elastic
What type of elasticity will you have for a good if that good already takes up a very large amount of your income?
Elastic
If elasticity of demand is greater than 1, what type of demand do you have?
Elastic demand
What type of elasticity will a good have if there are many substitutes for that good?
Elastic elasticity.
If elasticity of demand is less than 1, what type of demand do you have?
Inelastic demand.
Necessities have what type of elasticity?
Inelastic elasticity
Life saving goods such as medicine have what type of elasticity?
Inelastic elasticity.
What type of elasticity will a good have if there are few substitutes for that good?
Inelastic elasticity.
How does advertising affect consumer demand?
It plays an important role in many trends and influences demand.
What would happen to your demand for normal goods if your pay decreased?
Less demand
What is the type of movement called when only price changes on a demand curve?
Movement along the curve
For elastic goods, what will happen to total revenue if prices decrease?
Prices go down, Revenue goes up
For elastic goods, what will happen to total revenue if prices increase?
Prices go up, Revenue goes down
For inelastic goods, what will happen to total revenue if prices decrease? Why?
Prices go up, Revenue goes down (same customers, not any new ones)
For inelastic goods, what will happen to total revenue if prices increase?
Prices go up, Revenue goes up
How do economists describe the movement when ceteris paribus is dropped?
Shift in the demand curve
Which way does the demand curve shift if the demand decreases?
Shift to the left (Law of Beyonce)
Which way does the demand curve shift if the demand increases?
Shift to the right
Why does a firm need to know if their product has elastic or inelastic demand?
So they can maximize their profit
Total Revenue
The amount a firm receives for the sale of its output before production costs are paid
Income Effect
The change in consumption resulting from a change in real income
Demand
The desire to own something AND the *ABILITY* to pay for it
What determines the price in the market system?
The interactions between the buyers and sellers
Why would a demand for a good be inelastic at low price levels?
The low prices mean a steady quantity demanded; it's still affordable.
What types of goods are luxuries?
Things that aren't required to survive, like steak; elastic
If elasticity of demand is equal to 1, what type of demand do you have?
Unitary demand, or unit demand.
Substitution Effect
When consumers react to an increase in a good's price by consuming less of that good, and more of other goods
What role does expectations in the future play in demand?
Whether or not we expect a good's price to increase or decrease in the future affects our demand for that good today.
How does a change in population affect demand?
Will increase demand for housing, food, and other goods and services.
What numbers are labeled on the vertical (y) axis of a demand curve? The x-axis?
Y-axis: prices X-axis: quantity
*Why* will you have the type of elasticity you have for a good if that good already takes up a very large amount of your income?
You can buy more products with the amount of money used to buy a single good that is very expensive.
