Unit 1: Chapter 3: Value and Demand Flashcards
Explain how prices transmit information.
Prices tell producers what, and how much to produce based on demand
Explain the Principle of Diminishing Marginal Utility
As you consume something you receive less and less satisfaction with each episode of consumption
What is the relationship between value and demand?
They are directly proportional. As demand or value increases, the other will too
What are the three functions of prices?
Transmit information, provide incentives, redistribute income
What are the four factors that create a change in demand?
Change in income
Change in price of related goods
Change in peoples tastes and preferences
Change in expectations
Define the Term: Normal Goods
These are goods that go up in demand when income increases
Define the Term: Inferior Goods
These are goods that go down in demand when income increases AND when income decreases based on individual priority and circumstance
Define the Term: Substitute Goods
Goods that are used as placeholders for other goods (Cheetos vs Cheesecrisps)
Define the Term: Complimentary Goods
Goods that are often sold together (peanut butter and jelly)
What might create a change in expectations and thereby change demand?
World events, life events, companies going out of business, etc.
Define the term: Law of Demand
All other things being constant, the lower the price the higher the demand, the higher the price the lower the demand
What effect would lowering a price have on the customer base?
It would go up because more people who value that product at a lower price would purchase it.
What effect would raising a price have on the customer base?
There would be fewer customers because fewer people value it at the higher price (Don’t pay $10 for a bag of cheetos)
Review and be able to interpret a Marginal Utility Schedule (P. 46)
See page 46
Review and be able to interpret a demand curve (P. 51)
See page 51
