Questions and Answers
What are substitutes?
Inelastic demand is nearly _____ when plotted on the demand curve.
vertical
What does a demand curve plot?
A demand curve plots the information in a demand schedule.
What is a complementary good?
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Inelastic demand exists when a change in a good's price has little impact on quantity demanded.
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Consumer ___ and preference affects demand.
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What does market size refer to?
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What role does income play in demand?
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The law of demand states there is an _____ relationship between price and quantity demanded.
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What does quantity demanded refer to?
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Elastic demand exists when a small change in a good's price causes a major change in quantity demanded.
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What does the substitution effect describe?
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Elastic demand is nearly ________ when plotted on the demand curve.
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What is diminishing marginal utility?
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What is purchasing power?
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Prices of ____ _____ are determinants of demand.
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What does a demand schedule list?
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Elasticity refers to the degree to which changes in a good's price affect the _____ demanded.
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What can cause a shift in the demand curve?
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Match the following concepts with their descriptions:
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The amount of a good or service that a consumer is willing and able to buy at various possible prices is called _____
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Consumer ____ can shift demand, being optimistic or pessimistic.
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What is the income effect?
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Study Notes
Demand Fundamentals
- Substitutes are goods that can replace similar items when prices rise, affecting consumer behavior and choices.
- The law of demand indicates an inverse relationship between price and quantity demanded: as prices increase, quantity demanded decreases and vice versa.
Demand Curve Characteristics
- Demand curves are graphical representations of demand schedules, plotting quantity demanded against price.
- Inelastic demand appears nearly vertical on a demand curve, showing that price changes have little effect on quantity demanded.
- Elastic demand appears nearly horizontal, indicating that small price changes lead to significant changes in quantity demanded.
Types of Demand
- Inelastic demand indicates that quantity demanded is relatively unaffected by price changes, while elastic demand shows a high sensitivity to price fluctuations.
- Diminishing marginal utility explains the reduction in satisfaction from consuming additional units of a good, influencing demand.
Determinants of Demand
- Key determinants include:
- Consumer Tastes: The popularity and preference for a product directly impact demand.
- Market Size: Fluctuations in the number of consumers can shift demand curves.
- Income: Consumers' purchasing power can shift demand based on their available money to spend.
- Related Goods: Prices of substitutes and complementary goods also influence demand decisions.
- Expectations: Optimistic or pessimistic future outlooks can cause demand shifts, as consumers adjust purchasing behaviors.
- Income Effect: Variations in purchasing power resulting from price changes affect demand.
Additional Concepts
- The quantity demanded refers to the specific amount a consumer is willing and able to buy at various prices during a specific time frame.
- The elasticity of demand measures how responsive the quantity demanded is to price changes, reflecting consumer sensitivity.
- Demand schedules list quantities of goods consumers are prepared to buy at different prices, providing insights for analyzing demand.
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Test your knowledge of economic principles related to demand with these flashcards. Each card presents vocabulary and definitions that are essential for understanding demand, substitutes, and complementary goods. Perfect for preparing for exams or reinforcing key concepts in economics.
