Economics Test Ch. 4 Demand

Calculating Elasticity

% change in QD/% change in P

1. Which of the following does not cause a shift of an entire demand curve? (a) a change in price (b) a change in income (c) a change in consumer expectations (d) a change in the size of the population

(a) a change in price

What effect does the availability of many substitute goods have on the elasticity of demand for a good? (a) demand is elastic (b) demand is inelastic (c) demand is unitary elastic (d) the availability of substitutes does not have an effect

(a) demand is elastic

If the price of a good rises and income stays the same, what is the effect on demand? (a) the prices of other goods drop (b) fewer goods are bought (c) more goods are bought (d) demand stays the same

(b) fewer goods are bought.

What does elasticity of demand measure? (a) an increase in the quantity available (b) a decrease in the quantity demanded (c) how much buyers will cut back or increase their demand when prices rise or fall (d) the amount of time consumers need to change their demand for a good

(c) how much buyers will cut back or increase their demand when prices rise or fall

The law of demand states that (a) consumers will buy more when a price increases. (b) price will not influence demand. (c) consumers will buy less when a price decreases. (d) consumers will buy more when a price decreases.

(d) consumers will buy more when a price decreases.

List the determinants of demand elasticity

Can the purchase be Delayed? Any Substitutes? Using a large Portion of Income?

Elasticity

a general measure of responsiveness, that tells us how a dependent variable, such as a quantity demanded, responds to a change in a an independent variable, such as price

Inelastic Demand

a given change in price causes a relatively smaller change in the quantity demanded

Demand Curve

a graphical representation of a demand schedule showing the quantity demanded at each price

Demand Schedule

a table that lists the quantity of a good a person will buy at each different price

Inferior good

as income increases, the demand for this type of good decreases

Normal good

as income increases, the demand for this type of good increases

Change in Demand

causes the entire demand curve to shift--to the right to show increase, --to the left to show decrease in demand

Marginal Utility

extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product

Substitute

goods used in place of another

Change in Quantity Demanded

movement along the original demand curve

Why does marginal utility diminish as consumers receive more of a product?

our satisfaction begins to decline

What causes a change in quantity demanded of a product?

price changes the quantity demanded of a product

Law of Demand

the quantity demanded varies inversely with its price. When the price increase, the demand decreases

Complement

two goods that are bought and used together

Unit Elastic

when the quantity demanded changes the same price a given change in price causes a proportional change in quantity demanded It's the same percentage change for price and quantity demanded.

List the non-price factors that cause a change in demand

Consumer Income- affordable prices Consumer Tastes- ads, fashion trends, seasonal Substitutes Complements Number of Consumers- population Expectations

How is change in quantity demanded shown on a demand curve?

results in shift ---> on the demand curve

Income Effect

the change in quantity demanded because of a change in price that alters consumers' real income

Substitution Effect

the change in quantity demanded because of the change in the relative price of the product

Demand

the desire, ability, and willingness to buy a product

Demand Elasticity

the extent to which a change in price causes a change in the quantity demanded

Which of the following statements is accurate? (a) When two goods are complementary, increased demand for one will cause decreased demand for the other. (b) When two goods are complementary, increased demand for one will cause increased demand for the other. (c) If two goods are substitutes, increased demand for one will cause increased demand for the other. (d) A drop in the price of one good will cause increased demand for its substitute.

(b) When two goods are complementary, increased demand for one will cause increased demand for the other.

when price goes up...

quantity demanded goes down

when price goes down..

quantity demanded goes up