econ: law of demand

with law of demand, you have to think like a _______________

consumer

what happens with law of demand?

price goes up, demand goes down

price goes down, demand goes up

price and demand move in ______________ directions

opposite

the amount of a good that consumers are willing and able to purchase; a product at a particular price over a given period of time

quantity demand

quantity demanded will represent __________________ on a graph and it happens to due to change in _______________

movement; price

2 factors that affect consumer buying

substitution effect and income effect

when an increase in the price of a good causes a consumer to switch away from that good and toward other goods that do not experience a price increase

substitution effect

what is an example of the substitution effect?

price of a coke doubles, so you buy pepsi

the change in consumption that occurs when a price increase causes consumers to feel poorer or when a price decrease causes them to feel richer or an actual change in their income (the more money you make the more you buy or spend or the less money you make the less you buy or spend)

income

a table that relates the quantity demanded of a particular good at a particular spot

demand schedule

a graphical representation of the demand schedule for a good showing the quantity demanded at each price

demand curve

a graphical representation of the quantity of a good demanded by ALL consumers in the market at each price

market demand curve

______________ of the demand curve represents a change in the amount people are willing and able to buy at every price

shift

increase in demand will shift the curve to the ___________

right

decrease in demand will shift the curve to the ___________

left

a movement along the demand curve caused by a change in price

change in quantity demanded

a shift of the demand curve due to the quantity demanded not a change in price

change in demand

caused due to a change in price

movement along the demand curve

5 events that can influence a shift in demand

taste, income, price related goods, expectations, number of buyers

an increase in demand when income rises or a decrease in demand when income decreases

normal good

an increase in demand when income decreases or a decrease in demand when an income increases

inferior goods

example of a normal good

buying a combo meal at a fast food restaurant

example of a inferior good

buying off the dollar menu at a fast food restaurant

an inferior good is _________ expensive

less

when an increase in the price of one of the goods leads to an increase in the demand for the other good

substitutes

example of a substitute

price of coke goes up, so you buy pepsi

when two goods are consumed together and an increase in the price of one of the goods leads to a decrease in the demand for the other

complements

example of a complement

increase in the price of syrup decreases the demand for pancakes

example of how expectation influences demand

storms - everyone fills up gas, goes to the store, and buys food for the next two weeks

the more buyers, the _____________ demand

higher

a measure of how strongly consumers respond to a change in the price of a good

elasticity of demand

when consumers respond to a change in price with a relatively large change in the quantity demanded

elastic

examples of items that would be elastic would be ______________

luxuries (things you don’t need but want)

when consumers respond to a change in price with a relatively small change in demand

inelastic

examples of items that would be inelastic: things that are __________________ and there are no substitutes

necessities

if you would go into business, it would be better to produce goods that were ____________ because even the price increase demand would not change

inelastic