Ch4 Flashcards
Demand
The desire ability and willingness to buy a product
Microeconomics
Area of economics that deal with behavior and decision making by small units
Demand schedule
Listing that shows the various quantities demanded of a product at all prices that might prevail in the market at a given time
- buy more units of a product as the price drops
Demand curve
Graph showing the quantity demanded at each price
Law of demand
When price go up quantity demanded goes down
-people buy more of a product at lower prices
Inverse relationship
Quantity demanded and price
Market demand curve
Shows the quantities demanded by everyone in the market interested in purchasing the product
Marginal utility
The usefulness or satisfaction you get from acquiring one more unit of a product
Diminishing marginal utility
Principle states we get less satisfaction from each additional quantity of a product we purchase
Change in quantity demanded
Movement along the demanded curve that shows a change in the quantity of the product purchased in response to a change in price
Income effect
Change in quantity demanded curve because of a change in price at alters consumers real income
Substitution effect
Change in quantity demanded because of the change in the relative price of the product
Change in demand
People willing to buy different amounts of the product at the same price
Change in consumer income
If income goes up consumers can buy more items at all prices and the demand curve shifts to the right
Substitute
Products that can be used in place of other products
- butter and margarine
Compliments
The use of one product increases the use of the other
- computers and software
Change in number of consumers
Increase in the number of consumers will increase demand and shift demand curve to the right
Elasticity
A measure of change in quantity to a change in price
Demand elasticity
Measure of responsiveness relating change in quantity to a change in price
- change in price causes a change in the quantity demanded
Elastic demand
Change in price causes a large change in quantity demanded
-fresh vegetables- price changes on the season
Inelastic demand
Change in price causes a small change in quantity demanded
-prescription drugs- price doesn’t matter people will still have ti buy it
Unit elastic
Change in price causes a proportional change in quantity demanded
Candy-10% price drop causes 10% increase in sales
Total expenditures test for elasticity
Multiply the price by the quantity demanded
-change in total expenditures between prices shows inelasticity
Determinants of demand elasticity 3 questions
Can the purchase be delayed
Are there adequate substitutes available
Does the purchase use a large portion of income
