Economy Test Review: Supply and demand

Demand

the desire, willingness, and ability to buy a product

Law of demand

as price increases, demand decreases; as price decreases, demand increases

demand curve always goes

down and right

supply curve always goes

upward

law of supply

as price increases, supply increases; as price decreases, supply decreases

Utility

usefulness or satisfaction an item or service gives you

Marginal utility

satisfaction from a bit more or a bit less of an item

Diminished utility

usefulness or satisfaction lessens as you buy more (buying something daily because its good but then gets sick of it)

Demand schedule

remember this! (don't buy cheap and be upset because)

you get what you pay for

Factors that causes a change in demand:

Price

Income

Quality

Supply

Substitute goods

Complementary goods

Elasticity

Measure of how consumers respond to a price change

Elastic Demand

Price changes result in a big change in demand

Major purchases are always elastic

Inelastic demand

price changes result in little or no change in demand

Medicine, gas, batteries, insulin, milk

Unit elastic

when price changes there is a proportional/equal change in demand

price goes up a little, demand goes up a little (EQUAL)

Income effect

More money results in more purchases; less money results in less purchases

(getting a raise, fired, win the lottery, gift card)

Law of demand is considered

inverse(opposite)

law of supply is considered

direct (same)