Chapter Four Vocabulary

Demand

the willingness to buy a good or service and the ability to pay for it

Law of demand

when prices go down, quantity demand increases but when prices go up quantity demand decreases

demand schedule

listing of how much of an item an individual is willing to purchase at each price

market demand schedule

listing of how much of an item all consumers are willing to purchase at each price

demand curve

graphically shows the data from a demand schedule

market demand curve

graphically shows the data from a market

law of diminishing marginal utility

the marginal benefit of using each additional unit of a product during a given period will decline

income effect

the change in the amount that consumers will buy because the purchasing power of their income changes

substitution effect

the change in the amount that consumers will buy because they buy substitute goods instead

change in quantity demanded

an increase or decrease in the amount demanded because of change in price

change in demand

when something prompts consumers to buy different amounts at every price

normal goods

goods that demand more when their income rise

inferior goods

goods that consumers demand less of when their incomes rise

substitutes

goods and services that can be used in place of each other

complements

goods used together, so a rise in demand for one increases the demand for the other

Elasticity of demand

measure of how responsive consumers are to price changes

Elastic

if quantity demand changes significantly as price changes

Inelastic

if quantity demanded changes little as a price changes

Unit elastic

when percentage change in price and quantity demanded are similar

total revenue

company’s income from selling products

total revenue test

method of measuring elasticity by comparing total revenues