Chapter 4 Flashcards
what does an Engel curve relate?
the quantity of a good consumed to income
what are substitute goods?
if an increase in the price of one leads to an increase in the quantity demanded of the other
what are complement goods?
if an increase in the price of one good leads to a decrease in the quantity demanded of the other
what are independent goods?
if a change in the price of one good has no effect on the quantity demanded of the other
how to calculate elasticity?
percentage change in quantity divided by percentage change in price
if elasticity is elastic, what happens?
price and revenue move in opposite directions
what is consumer surplus?
Difference between what a consumer is willing to pay for a good and the amount actually paid
what is a giffen good?
Good whose demand curve slopes upward because the (negative) income effect is
larger than the substitution effect.
what is network externality?
When each individual’s demand depends on the purchases of other
individuals
what is the bandwagon effect?
Positive network externality in which a consumer wishes to possess a good in part because others do
what is the snob effect?
Negative network externality in which a consumer wishes to own an exclusive or
unique good
what is an isoelastic demand curve?
Demand curve with a
constant price elasticity
