Demand Curves

Question 1

Homogenous demand

Answer 1

Quantity demanded doesn’t change when prices and incomes increase in same proportion

Question 2

Normal good and inferior good

Answer 2

Normal good = good bought in greater quantities as income increases

Inferior good = smaller quantities as income increases

Question 3

Substitution effect in consumption

Answer 3

The parts of the change in quantity demanded that is caused by the substitution of one good for another

movement along indifference curve

Question 4

Income effect

Answer 4

The part of the change in quantity demanded caused by a change in real income

shift to new indifference curve

Question 5

Demand function

Answer 5

A representation of how quantity demanded depends on prices income and preferences

Question 6

Complements

Answer 6

2 goods such that when price of 1 increases the Qd other decreases

Question 7

Substitutes

Answer 7

2 goods that if P of 1 increases, Qd other increases

Question 8

Individual demand curve

Answer 8

Graphic representation of the relationship between the price of a G and Qd by a person all factors constant

Question 9

Price elasticity of demand

Answer 9

% change in Qd of G in response to a 1% change in its P with other determinants of D constant

eQ,P= %changeQ/%changeP

-1 inelastic

Question 10

Income elasticity of demand

Answer 10

% change in Qd of a G in response to a 1% change in income

eQ,P = %changeQ / %changeI

\+ve =  normal
>1 = luxury
-ve = inferior

Question 11

Cross price elasticity of demand

Answer 11

% change in Qd of G in response to 1% change in P of another G holding constant

eQ,P^1 = %changeQ / %changeP^1