micro 4

Question 1

law of demand

Answer 1

-Holding other things constant (ceteris paribus), there is an inverse relationship between the price of a good and the quantity of the good demanded per time period.
-Substitution effect
-Income effect

Question 2

substitution effect

Answer 2

-Assuming that real income (opposed to nominal income) (adjusted for prices income) is constant:
-If the relative price of a good rises, then consumers will try to substitute away from the good. Less will be purchased.
-If the relative price of a good falls, then consumers will try to substitute away from other goods. More will be purchased.
-The substitution effect is consistent with the law of demand.

Question 3

income effect

Answer 3

-The real value of income is inversely related to the prices of goods.
-A change in the real value of income:
~will have a direct effect on demand if a good is normal.
~will have an inverse effect on demand if a good is inferior.

Question 4

individual demand schedule

Answer 4

individual’s demand schedule shows the quantity demanded of a commodity per unit in time for a specified price holding everything else constant.

Question 5

individual demand curve

Answer 5

Individual’s demand curve is a visual representation of the corresponding individual’s demand schedule

Question 6

market demand curve

Answer 6

Market demand curve is a horizontal summation of demand curves of individual consumer

Question 7

bandwagon effect

Answer 7

*Collective demand causes individual demand- because the market demands it now i will because everyone else wants it

Question 8

snob effect

Answer 8

*Conspicuous consumption
*A product that is expensive, elite, or in short supply is more desirable-strange and doesn’t happen often

Question 9

imperfect competition

Answer 9

monopoly, oligopoly, monopolistic competition

Question 10

monopoly

Answer 10

Sole producer of a good. Monopolist’s demand = market demand.

Question 11

oligopoly

Answer 11

A few large firms in the market. (airlines)

Question 12

monopolistic competition

Answer 12

Many firms selling differentiated products.

Question 13

perfect competition

Answer 13

-Large number of firms selling identical goods.
-Firm is a price taker: firm’s demand curve is horizontal.

Question 14

price elasticity of demand

Answer 14

-is given by the percentage change in the quantity demanded of the commodity divided by the percentage change in its price, holding constant all the other variables in the demand function.
-elasticity is a question

Question 15

The demand for a commodity will be more price elastic if:

Answer 15

–It has more close substitutes
–It is more narrowly defined
–More time is available for buyers to adjust to a price change

Question 16

The demand for a commodity will be less price elastic if:

Answer 16

–It has fewer substitutes (insulin very inelastic)
–It is more broadly defined
–Less time is available for buyers to adjust to a price change

Question 17

income elasticity of demand

Answer 17

-measures the responsiveness in the demand for a commodity to a change in consumer income.

Question 18

*The cross-price elasticity of demand

Answer 18

measures the responsiveness in the demand for a commodity X to a change in the price of commodity Y.

Question 19

International Convergence of Tastes

Answer 19

–Globalization of Markets
–Influence of International Preferences on Market Demand

Question 20

*Growth of Electronic Commerce

Answer 20

–Cost of Sales
–Supply Chains and Logistics
–Customer Relationship Management