Chapter 3 Test Flashcards
What does that principle state?
People tend to receive less as they obtain more of it
What are the three functions of prices?
> Serve to transmit information
Provide incentives
Redistribute income
- What is the economic definition of the word demand?
A consumers desire and willingness to pay a price for a specific good or services
State the law of demand.
Everything else held constant,
>the lower the price for a good or service, the greater the demand
>the higher the price, the lower the demand
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?
1) a change in people’s income
2) a change in the price of related goods
3) a change in people’s taste and preferences
4) a change in people’s expectations
Why is it that when the price of an original good rises we tend
to purchase more substitute goods and fewer complementary goods?
When an original good rises the complementary good rises too. The substitute good will usually stay the same though.
Give an example to explain the principle of diminishing marginal utility.
Something you love now, you won’t love later. For example, a new iPhone you spent a lot of money on and love now, you won’t later when the newer and cooler one comes out.It stems from too much of the same thing.
Explain how prices act to transmit information
Business firms receive information from price mechanisms that tell them which products to produce.
According to Jevons, when an individual makes a decision at the margin, how does he determine the amount to obtain?
He determines it by when the marginal just offsets the marginal cost.
List five goods that you consider normal goods and five that you consider inferior goods.
Normal : Cable, Internet, Nice cars, Phones, 5 Star Restaurants
Inferior: Recapped tires, Used cars, Powdered Milk, Secondhand Stores, City buses
Why is it that when the price of an original good rises we tend
to purchase more substitute goods and fewer complementary goods?
When an original good rises the complementary good rises too. The substitute good will usually stay the same though.
How do business firms use advertising to shift an individual household’s demand curves? Is it morally right for them to do so? Why or why not?
Essay
Who identified the principle of diminishing marginal utility?
William Stanley Jevon’s
