Chapter 4 - Demand Flashcards
Market
Any place where people come together to buy and sell goods or services
Demand
The willingness AND ability of buyers to purchase different quantities of a good at different prices during a specific time period
Law of Demand
As Price increases, the Quantity Demanded of a good decreases. As Price decreases, the Quantity Demanded of a good increases.
Quantity Demanded
The number of units of a good purchased at a specific price.
Law of Diminishing Marginal Utility
A law stating that as a person consumes additional units of a good, eventually the utility gained from each additional unity of the good decreases. (This is the reason why the Price decreases as Quantity Demanded Increases)
Demand Schedule
Numerical representation of the Law of Demand. The numbers that make up the graph, they just aren’t plotted.
Demand Curve
Graphical representation of the Law of Demand. Plot of the Demand Schedule
If Demand increases/decreases, the curve shifts to the…
Right/Left. This is NOT Ceteris Paribus.
What Factors Cause Demand Curves to Shift?
Future Price Income Prices of Related Goods Preferences Number of Buyers
Normal Good
A good for which the demand rises as income rises and falls as income falls
Inferior Good
A good for which the demand falls as income rises and rises as income falls
Neutral Good
A good for which the demand remains unchanged as income rises or falls
Substitute
A similar good. With substitutes, the price of one and the demand for the other move in the same direction. (For example, if orange juice and apple juice are substitutes for each other, then as price of OJ increases demand for AJ increases)
Complement
A good that is consumed jointly with another good. With complements, the price of one and the demand for the other move in opposite directions. (For example, if the price of a tennis racket increases, the demand for tennis balls will go down)
What Factor Causes a Change in Quantity Demanded?
Price. This is only movement ALONG the line. Ceteris Parabus.
