Chapter 2.2 Flashcards
Demand
The various quantities of a good or service the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus
Law of demand
There is a negative relationship between the price of a good and it’s quantity demanded over a particular time period
Market demand
The sum of all individual demands for a good
How does the market demand curve illustrate the law of demand?
There is a negative relationship between price and quantity demanded
Non-price determinants of demand definition
The variables other than price that can influence demand
Non-price determinants of demand
Income in the case of normal goods
Income in the case of inferior goods
Preferences and tastes
Prices of substitute goods
Prices of complementary goods
Number of consumers
Normal good
When demand for it increases in response to an increase in consumer income
Inferior good
Demand falls as consumer income increases
Substitute goods
Two goods that satisfy a similar need
Complementary goods
Two goods that tend to be used together
Utility
The satisfaction that consumers gain from consuming something
Law of diminishing marginal utility
As consumption of a good increases, the marginal utility decreases with each additional unit consumed
Substitution effect
If the price of a good falls, the consumer substitutes of the now less expensive good
Income effect
As price falls and real income increases, quantity demanded of the good increases
Why does the substitution effect and income effect reinforce each other?
Both cause an increase in quantity demanded when price falls
