Topic 3.1 - 3.3: Demand, Supply, and Prices

demand

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

law of demand

when a good's price is lower, consumers will buy more of it. When the price is higher, consumers will buy less

substitution effect

1 or 2 different ways that a consumer can change their spending patterns. This effect takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more on a substitute good

income effect

you can no longer afford to buy the same combination of goods, and you must cut back on purchases of some goods

demand schedule

table that lists the quantity of a good that a person will buy at each price in the market

market demand schedule

shows quantities at each price by all consumers in the market

demand curve

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

ceteris paribus

all other things remain constant

non-price determinants

the variables (other than price) that can influence demand, and that determine the position of a demand curve; a change in any determinant of demand causes a shift of the demand curve, which is referred to as a 'change in demand'

normal goods

a good that consumers will purchase more of when their income increases

inferior goods

a good that consumers will purchase less of when their income increases

demographics

the characteristics of a population with respect to age, race, gender

complements

2 goods used in place of one another

substitutes

goods used in place of one another

elasticity of demand

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

inelastic

describes demand that is not very sensitive to price

elastic

describes demand that is very sensitive to a change in price

unitary elastic

describes demand whose elasticity is exactly equal to one

total revenue

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