Economics Ch.3 test

demand schedule

a table that lists the quantity of a good that a person will purchase at various prices in a market.

demand

is the desire to own something and the ability to pay for it.

Demand is elastic. When elastic price ___________. Raising the price of each unit sold by 20% will ______________ the quantity sold by a larger percentage, say 50%. The quantity sold will _______ enough to actual ___________ the firm's total.

rises decrease drop reduce

ceteris paribus

"all other things held constant." ; assumption

Identify Cause and Effect After reading the section "Changes in Income," explain how changes in income affect the demand for normal goods.

A consumer's income affects his or her demand for most goods. Most items that we purchase are normal goods, goods that consumers demand more of when their incomes increase.

substitute

goods that are used in place of one another.

demand curve

is a graphic representation of a demand schedule.

unitary elastic

If elasticity is exactly equal to 1, we describe demand as unitary elastic.

Causes of a Shift in the Demand Curve

- income - population - Advertising - Consumer expectations - Consumer taste - Demographics

As the price of a good goes down... - Law of demand - Substitution effect - Income effect

- the higher quantities are demanded - the consumer stays buying that product - you keep buying the product.

Determine Central Ideas Read "How Elasticity Affects Pricing Policies." Explain why a business owner needs to understand elasticity of demand for his or her good or service when considering price changes.

A business owner needs to understand elasticity of demand for his or her goods or service when considering price changes because this knowledge helps the firm make pricing decisions that lead to the greatest revenue. If a firm knows that the demand for its product is elastic at the current price, it knows that an increase in price might reduce total revenues.

Vocabulary: Use Context Clues Look at the word unitary. Based on the definition of the term unitary elastic and the context, what do you think this term means?

Based on the definition of the term unitary elastic and the context it means when the demand equals exactly zero.

Categorize Which factor affecting elasticity explains why a person may continue to purchase gasoline even though the price rises sharply?

Demographics is a factor affecting elasticity which explains why a person may continue to purchase gasoline even though the price rises sharply. Due to their job being cross town and catching the bus will not allow them to get to work on time, they have to pay for the pricey gas that fuels their transportation.

income effect

If you buy fewer slices of pizza without increasing your purchases of other foods, that is the income effect.

elastic

If you buy much less of a good after a small price increase, your demand is elastic

inelastic

If you buy the same amount or just a little less of a good after a large price increase, your demand is inelastic.

Use Visual Information Use Figure 3.4 to answer the following: If the cost of gasoline increases from $3.00 per gallon to $4.00 per gallon and the quantity demanded decreases from 12 gallons to 10 gallons, would the demand be elastic or inelastic?

Inelastic

Cite Evidence Read the first paragraph under "Changes in Demand." Was the person's change in demand for a burger in this situation based on price or on some other factor?

It was based on some other factor such as rain. According to the text, on a stormy night, "Not only has your demand for burgers at any price dropped, your demand for home-delivered pizza at any price has risen.... Sometimes increases or decreases in demand are not connected to price."

Categorize What are non-price determinants, and why are they given that name? Give some examples.

Non-price determinants are several factors that can cause demand for a good to change. Some examples include advertising, income, and demographics.

Use Visual Information Look at Figure 3.7. What would total revenue be if the price went to $7 a slice but demand fell to just 25 slices?

Since 7 times 25 equals 175, the total revenue would be $175 per day.

Use Visual Information Review the map "States with Tax Holidays." Note which states offer tax holidays. How do you think tax holidays affect demand?

Tax holidays affect demand because if you expect a tax holiday next week, you are going to wait to buy that item next week or if next week you know the price is going to be higher, you will buy sooner than later.

Vocabulary: Use Context Clues Read the first paragraph under "The Demand Graph." What do you think the phrase graphic representation means?

The phrase graphic representation means a demand curve that shows a demand schedule.

normal good

goods that consumers demand more of when their incomes increase.

When the Demand is inelastic, the price ________________. The price and ________ _________________ move in the same direction. An _________________ in the prices ___________________ ______________________ __________________. and a ______________________ in price ________________ ____________________ ______________________

rises total revenue increase raises total revenue decrease reduces total revune

non price determinant

several factors can cause demand for a good to change.

market demand schedule

shows the quantities demanded at various prices by all consumers in the market.

demographics

the statistical characteristics of populations, such as age, race, gender, occupation, and income level.

As the price of a good goes up ... - Law of demand - Substitution effect - Income effect

- lower quantities demanded - the customer starts to buy a different product that would substitute the 1st one. - you buy fewer of that product and do not increase your purchase of similar products.

Compare and Contrast After reading the sections "The Substitution Effect" and "The Income Effect," compare and contrast the substitution effect and the income effect.

The substitution effect takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good while the income effect is when you buy less of a product such as pizza and don't spend more money another item such as shrimp

substitution effect

takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

Draw Inferences Think about normal goods and inferior goods. Give an example of normal and inferior goods that are also substitutes.

An example of normal goods would be purchasing an iphone 11 and an ipad after you got your bonus check instead of buying a galaxy and a tablet. An example of inferior goods would be not buying plastic plates no more but instead buying glass plates.

elasticity of demand

Economists describe the way that consumers respond to price changes.

Categorize If a person is willing to give up her yearly two-week cruise in the Caribbean due to a price increase, her action illustrates which factor affecting elasticity? Explain your answer.

Her action illustrates the factor of income affecting elasticity. Since she is no longer able to afford the cruise that went up in price, even though she have the same amount of income, she can not buy the ticket.

Analyze Sequence Read the section "Change Over Time," and explain the process by which time affects elasticity.

Time affects elasticity because consumers do not always react quickly to a price increase since it takes time to find substitutes. Due to them not responding quickly to price changes, their demand is inelastic in the short term. Demand sometimes becomes more elastic over time, however, because people can eventually find substitutes.

Determine Central Ideas Read the sections "Understanding Demand" and "Market Demand Schedules." Which do you think would be most important to the owner of a business?

To an owner of a business, "Market Demand Schedules" is most important because it allows the owner to predict an approximate quantity of a certain product based on the prices. This allows them to sell the most products at the best price.

Vocabulary: Determine Meaning Read the quote from Professor Henderson in the section "The Law of Demand." What do you think Henderson means when he says that "on this law is built almost the whole edifice of economics"? What is the meaning of the word edifice in this context?

When Henderson says that "on this law is built almost the whole edifice of economics" he means economics is built based on the law of demand. Edifice means a building block in this context.

inferior good

are goods that you would buy in smaller quantities, or not at all, if your income were to rise and you could afford something better.

complement

are two goods that are bought and used together.

Vocabulary: Determine the Meaning What does ceteris paribus mean? Restate the meaning in your own words.

ceteris paribus means when you assume something as fact or constant

law of demand

says that when a good's price is lower, consumers will buy more of it.

total revenue

the amount of money the company receives by selling its goods.

Compare and Contrast Look at Figure 3.1. How are individual and market demand schedules similar? How are they different?

the price of the pizza is the same and as the prices increase, the less people buy them. Individual and market demand schedules are different because the market demands way more pizzas at one time for a certain price than individual demand schedules.

Determine Central Ideas Read the section "Price Range." Why do you think people are more willing to pay 50 percent more for a product that increases in price from 75 cents to $1.00 than a product that increases from $5.00 to $7.50, also an increase of 50 percent?

People are more willing to pay 50 percent more for a product that increases in price from 75 cents to $1.00 than a product that increases from $5.00 to $7.50, also an increase of 50 percent because the price is still low when it increases to $1.00 versus $7.50.

Vocabulary: Determine Meaning What is the relationship between the words curve and graph in this discussion about demand graphs?

The relationship between the words curve and graph in this discussion about demand graphs is how when the line is drawn on the graph to show the demand schedule, the line makes a curve.

Read the definition of demand presented in the section "Demand." Why do you think both of these factors must be present in order to have true demand?

To have demand for a good or service, both of these factors must be present because for you to be able to own something someone has to give you the service to sell it to you and you have to be able to buy the good.