Econ Chapter 4

demand

the desire to own something and the ability to pay for it

law of demand

consumers buy more of a good when its price decreases and less when its price increases

demand scedule

table that lists the various quantities of a product or service that someone is willing ot buy over a range of prices

market demand schedule

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

demand curve

a graph of the relationship between the price of a good and the quantity demanded

market demand curve

shows the data found in the market demand schedule

law of diminishing marginal utility

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

incom effect

the term used fro a change in the amount of a product that a consumer will becasue the purchasing power of his or her incom chnages- even if the incom itslf doesnt change.

substitution effect

the pattern of behavior that occurs when consumers react to a change in price of a product by buying a substitute product that offers a better relative value

change in quantity demand

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

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

inferior goods

Goods for which demand tends to fall when income rises, used when income falls

substitutes

goods used in place of one another

complements

two goods that are bought and used together

elasticity of demand

consumers' responsiveness or sensitivity to changes in price

elastic

describes demand that is very sensitive to a change in price

inelastic

Describes demand that is not very sensitive to a change in price

unit elastic

when the percentage change in price and quantity demanded are the same

total revenue

the total amount of money a firm receives by selling goods or services

total revenue test

a method of measuring elasticity by comparing total revenues

What determines Elasticity(3)

Substitue goods or services, proportion of income, necessities v. luxuries

precent change in quantity demand (math)

(og quantity - new quantity)
------------------------------- x 100 = % change
og quantity

Precent change in price (math)

(og price - new price)
----------------------- x 100 = % change in price
og price

elasticity (math)

% change in quantity demand
------------------------------ = elasticity
% change in price