Chapter 3 Flashcards
Competitive markets are…
a market that has many buys and many sellers so no single buyer can influence the price
The ratio of one price to another is called …
a relative price
Demand is…
reflects the decision about which to satisfy
The law of demand states that…
other things remaining the same, the higher price of a good the smaller the quantity demanded. The lower price of a good the greater the quantity demanded
Why does a higher price reduce the quantity?
Substitution and income Effect
Substitution effect is…
other goods that can be used in its place, opportunity cost rises
Income effect is…
Price rises relative to income. faced with a higher price and unchanged income people cannot afford to buy all the things they previously bought
When demand increase…
the demand curve shifts rightward
What are the 6 factors to change in demand?
- the price of related goods
- expected future prices
- income
4.Expected future income and credit - population
- Preferences
a normal good is..
which increases demand as income increases
Inferior good…
demand decreases as income increases
