econ test chp. 4

substitution effect

the portion of a change in quantity demanded that is due to a change in the relative price of the good

marginal utility

additional satisfaction or usefulness obtained from acquiring or consuming one more unit of a product

law of demand

rule stating that more will be demanded at lower prices and less at higher prices; an inverse relationship between price and quantity demanded

inelastic

case of demand elasticity where the percentage change in the independent variable (usually price) results in a larger change in the dependent variable (usually quantity demanded or supplied)

demand elasticity

the extent to which a change in price causes a change in the quantity demanded;demand elasticity has three cases: elastic, inelastic, or unit elastic

demand curve

graph showing the quantity demanded at each and every possible price that might prevail in the market at a given time

demand

combination of quantities that someone would be willing and able to buy over a range of possible prices at a given moment

complements

products that increase the use of other products; products related in such a way that an increase in the price of one reduces the demand for both

change in quantity demanded

movement along the demand curve showing that a different quantity is purchased in response to a change in price

change in demand

different amounts of a product are demanded at every price, causing the demand curve to shift to the left or to th3 right

what are the characteristics of demand?

the price of a product and the quantity available at a given point in time

what is the relationship between quantity demanded and change in price?

higher prices are associated with small amounts demanded, lower prices are associated with larger amounts demanded

what is diminishing marginal?

decrease in additional satisfaction or usefulness as additional units of a product are acquired

what is movement along the demand curve as opposed to a shift in the demand curve a result of?

a change in quantity demanded

what is income effect?

that portion of a change in quality demanded caused by a change in consumer’s income when the price of a product changes

what is the substitute for coffee?

tea

what is the complement for coffee?

donut

what product is demand inelastic?

the price of a cancer drug might not bring about much change in the quantity demanded if patients don’t have other options

how do economists measure inelasticity?

by comparing the quantity demanded to the price. smaller changes in quantity demanded indicates inelastic demand

when estimating elasticity what is the direction price change to the direction of the change in total revenue?

a change in price and a change in revenue move in opposite directions

how do you illustrate the law of demand?

y-intercept=price

x-intercept=quantity