Chapter 3:demand side

demand schedule

a table that shows the realationship between price of a product and the quantint of the product demanded

quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

demand curve

a curve that shows the realtionship between the price of a product and the quantity of the product demanded (comes from the demand schedule)

market demand

the demand by all the consumers of a given good or service

law of demand

the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase and when the price rises, the quantity demanded of the product will decrease

what explains the law of demand

substitutions and income effect

substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

income effect

the change in the quantity demanded of a good that results from the effect of a chanfe in the goods price on customers

ceteris paribus

“all else equal” the requirement that when analuzing the realtionship between 2 variables, such as price and the quantity demanded, other variables must be held constant

a shift of a demand curve is an…

increase or decrease in demand

a movement along a demand curve is an…

increase or a decrease in quantity demanded

variables that shift market demadn

income, price of realted goods, tastes, population and demographics, expected future prices

income

relies on normal and inferior goods

normal good

a good wehre the demand increases as income rises and decreases as income falls ex clothes

inferior goods

a good for which the demand increases as income falls and decreases as income rises ex used cars

prices of related goods

relies on substitutes and complements

substitutes

are substitutes when…

1. goods and sevices that can be used for the same purpose

2. increase in the price of one, increases demand for the other

compements

are compliments when

1. goods and services that are used together

2. increase in price for one, decreases demand for another

tastes

subjective elements such as ad campagins can enter into a consumers decision to buy a product

population and demographics

demogrpahics-the cahrcteristics of a population with respect to age gender and race

expected future prices

consumer choose not only which products to buy but also when to buy them (ex if gas will increase tomorrow people will buy more today)