econ test 3

Demand

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

Law of demand

Consumers will buy more of a good when its price is lower and less when its price is higher

Substitution effect 

when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good 

income effect 

the change in consumption that results in response to changes in price

Demand schedule

a table that lists the quantity of a good that a person will purchase at various prices in a market

market demand schedule

a table that lists the quantities demanded of a good at various prices by all consumers in the market

demand curve 

a graphic representation of a demand schedule 

ceteris paribus

a latin phrase that means “all other things held constant”

normal goods

a good that consumes demand more of when their incomes increase

inferior goods 

a good that consumers demand less of when their incomes increase 

demogrpahics

the statistical characteristics of populations and population segments, especially when used to identify consumer markets.

complements `

two goods that are bought and used together

substitutes 

goods that are used in place of one another

elasticity of demand

a measure of the way quantity supplied reacts to a change in price

inelastic 

describes the demand that is not very sensitive to price changes

elastic

describes demand that is very sensitive to a change in price

unitary elastic

describes demands whose elasticity is exactly equal to onetot

total revenue 

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

% Change in QD/% Change in PR

QD1-DQ2/(QD1+QD2)/2/P1-P2/(P1+P2)/2

when do companies increase the price

inelastic (less than one)

when do companies decrease the price

elastic (more than 1)

whWen do companies keep the same price 

unit elasticity (equal to 1)

perfectly elastic

price will not change p

perfectly inelastic

The amount will not change