Mod 2 Flashcards
What is the Law of Demand?
Consumers buy less (more) of a good as its price increases (decreases).
What is the difference between a ‘change in demand’ vs. a ‘change in quantity demanded’?
A ‘change in demand’ shifts the demand curve; a ‘change in quantity demanded’ moves along the same demand curve due to price changes.
What happens to the demand for Red Sox caps if the team wins more games?
There is an increase in demand for Red Sox caps.
What is a market demand?
A market demand is obtained by summing up the individual quantities at each price.
What does ceteris paribus mean?
The phrase means ‘with other things being equal’, indicating that everything else is unchanged.
What are substitutes?
Two goods are substitutes when an increase in the price of one good causes an increase in the demand for the other.
Would a decrease in the price of video iPods increase the demand for video iPods?
No, it increases the quantity demanded, not the demand.
What are complements?
Complementary goods go together; buying one increases the likelihood of purchasing the other.
What is an inferior good?
A good is inferior if consumers buy less of it as their income increases.
What is a normal good?
A good is normal if consumers buy more of it as their income increases.
How can expectations affect demand?
Expectations about future prices or income can influence current demand.
What is the price elasticity of demand?
A measure of the responsiveness of quantity demanded to changes in price.
What does it mean if demand is elastic?
Percentage change in quantity demanded exceeds percentage change in price.
What does it mean if demand is inelastic?
Percentage change in quantity demanded is less than percentage change in price.
What is the shape of a perfectly inelastic demand curve?
A vertical line.
What is the shape of a perfectly elastic demand curve?
A horizontal line.
How does an increase in price affect total revenue when demand is elastic?
Total revenue will decline.
How does a decrease in price affect total revenue when demand is inelastic?
Total revenue will decrease.
How do substitutes affect price elasticities of demand?
The more substitutes available, the higher the price elasticity of demand.
How does a broad definition of a product affect its price elasticity of demand?
Broader definitions lead to fewer substitutes and more inelastic demand.
How does a good being a necessity affect its price elasticity of demand?
Necessities tend to have inelastic demands due to lack of close substitutes.
How do long time frames affect price elasticities of demand?
Long run elasticities are typically larger than short run elasticities.
What does income elasticity of demand measure?
It measures how quantity demanded responds to changes in income.
In the short run, how does the price elasticity of demand for durables compare to the long run?
More elastic in the short run than in the long run
