AP Microeconomics Unit 2

Quantity Demanded

The quantity of a good or service consumers are willing and able to buy at a specific price

What is the Law of Demand?

The quantity demanded of a good is inversely proportional to the price of the good.

What is Certius Paribus?

A Latin phrase economists use meaning “all else being equal”

What is a Demand Curve?

Shows how much of a good or service consumers want to buy at any given price, all else being equal (ceteris paribus)

Why is the demand curve downward sloping?

1. Income Effect: Higher prices reduce consumers purchasing power, so they buy less

2. Substitution Effect: Higher prices cause consumer to buy substitute goods instead

3. Diminishing Marginal Utility Effect: consumers only buy additional units at lower prices, because the additional satisfaction is decreasing

How do you calculate market demand?

Take the horizontal sum of all individual demand curves in a market

What causes a change in quantity demanded?

only a change in price. This is shown as a movement along the demand curve

What causes a change in demand?

Any change in a non-price determinate of demand. This affects quantity demanded at all prices and is shown as a shift of the entire demand curve.

What are the 5 non-price determinant of demand?

1. Consumer income

2. expectations

3. Number of consumers

4. Tastes and Preferences

5. Price of related goods

What is a normal good?

A good for which demand increases when income increase (and vice versa). Ex. Jewelry, houses, seafood

What is an inferior good?

A good for which demand decreases when income increases (and vice verse. Ex. Top Ramen, used cars, and fast food

What are substitutes?

Goods used in place of one another. If the price of one increase, the demand for the other will increase (and vice versa)

What are complements?

Goods that are bought and use together. If the price of one increases, the demand for the other will decrease (and vice versa).