Chapter 4 Quiz

Microeconomics

is the part economic theory that deals with behavior and decision-making by individual units, such as people and firms.

• Note: Mirco=small

What is demand?

• Definition: Various amounts of a product that someone is willing and able to buy over a range of possible prices at one point in time.

• What are the calculation of demand comes from?:

It comes down to 2 VARIABLES:

• Price of a product

• The quantity available at a given point in time.

What is quantity demand?

Amount of a product being bought.

What does ceteris paribus means?

Other things held constant.

Demand schedule

Shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

Demand curve

Shows the quantity demanded at EACH price that might prevail in the market.

Law of Demand

The quantity demanded varies inversely (opposite) with its price.

What is the relationship between quantity demanded and price?

People almost always state that they would buy more of an item if its price went down and less if the price went up.

Why do we use law in econ?

Economics is a social science, its a study of the way people behave when things around us change. Its a law when a theory is proven true after repeated tests.

Market demand curve

Shows the quantities demanded by everyone who is interested in purchasing the product.

Equation: A+B= Market

Marginal utility

• is extra usefulness or additional satisfaction a person gets from acquiring one more unit of a product.

• What does Carl Menger say?:

• Satisfaction decreases as a person consumers more of a particular product.

• A goods value and price is determined by the consumer.

Diminishing marginal utility

• is the decrease in additional satisfaction or usefulness as additional units of  a product or required.

What causes quantity demand to move?:

A change in PRICE.

The change in quantity demanded consists of two parts:

• Substitution effect:

 change in a quantity demanded because of a shift in relative prices.

• Income effect:

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

• Factors that can cause a change in demand: Consumer income

• Consider the way in which an increase in minimum wage might after the market demand schedule and curve.

• When people earn more, they are usually willing to buy different amounts to all possible prices.

• Factors that can cause a change in demand: Consumer tastes

• Consumers often change their minds about which products to buy.

• Advertising, fashion trends, peer group pressure, and even changes in the seasons can affect consumer choices.

• Factors that can cause a change in demand:Future expectations

• The way people think about the future can also affect demand.

• Expectations can have the opposite effect.

• We cannot predict the effect of a change in expectations without additional details.

• Factors that can cause a change in demand: The number of consumers

When more consumers enter the market, market demand increases and the curve shifts to the right.

• Factors that can cause a change in demand: Prices of related goods

Substitutions: Change in the price of related products

• examples:

• Butter and margarine are substitutes. an increase in the price of butter will causes an increase in the price of butter will cause and increase in the demand for margarine.

Complements: Other related goods, the use of one increases the use of the other.

• examples:

Personal computers and software are two complementary goods, when the price of computers decreases, consumers Buy more computers and soft ware.

What are the three kinds of demand elasticity:

1. Elastic:

• A price change causes a relatively larger change in quantity demanded

• Demand tends to be elastic if people have options and do not need something urgently.

1. Inelastic:

• If a price change causes a relatively smaller change in quantity demanded

• Demand is inelastic if the result is less than one.

1. Unit elasticity:

• When a price change causes a proportional change in quantity demanded

• An item is unit elastic when it equals one.

Demand elasticity

the extent to which a change in price causes a change in the quantity demanded. The man elasticity has three cases: elastic inelastic and unit elastic.

GRAPHS: Demand Schedule

GRAPHS: Demand Curves

GRAPHS: Market demand graphs

Equation: A+B= Market

GRAPHS: Demand Price Changing Graphs

GRAPHS: Demand Shift graphs