Chapter 3 Flashcards
Who identified the principle of diminishing marginal utility?
William Stanley Jevons
What does that principle state (diminishing marginal utility)?
People tend to receive and less additional satisfaction from any good or service as they obtain more and more of it during a specific time.
What are the three functions of prices?
Prices transmit information
They provide incentives
Redistribute income
What is the economic definition of the word demand?
The act of buying goods or services
State the law of demand
Everything else being held constant, the lower the price charged for a good or service, the greater the quantity people will demand and the high the price, and vica versa
What is the name of the graph that illustrates the demand for certain products?
Demand Curve
what four conditions may change the demand for a product?
Change in people’s incomes
Change in the price of related goods
Change in people’s tastes and preferences
Change in people’s expectations
Give an example to explain the principle of diminishing marginal utility.
Simple illustrations such as of numbers of cookies eaten at home after school. Glasses of water consumed when thirsty
Explain how prices act to transmit information.
Rising prices inform producers that consumers are demanding more products and falling prices inform producers that demand is lessening for products. [Prices basically inform producers how much to produce]
According to Jevons, when an individual makes a decision at the margin, how does he determine the amount to obtain?
The individual chooses to obtain the amount at which the marginal benefit just offsets the marginal costs
Why is it that when the price of an original good rises we tend to purchase more substitute goods and fewer complementary goods?
When the price of an original good rises, the prices of complementary goods will likely also rise, consumers will then purchase more of the substitute good which likely remained at a lower cost.
