Economics Chapter 4 Flashcards

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Questions and Answers

What is microeconomics?

Area of economics that deals with behavior and decision making of small units.

What does a demand curve represent?

Graph showing the quantity demanded at each and every price at a given time.

What is demand?

The desire, ability, and willingness to buy a product.

What is marginal utility?

The extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product. Signup and view all the answers

What is diminishing marginal utility?

The decrease in satisfaction or usefulness received from each additional unit of a product. Signup and view all the answers

More of a product will be purchased at low prices than at high ones.

True Signup and view all the answers

In what direction is the demand curve always sloping?

Downward Signup and view all the answers

What three things must exist in order for there to be demand?

Desire, ability, willingness Signup and view all the answers

What is illustrated by movement along the demand curve?

Change in quantity demanded Signup and view all the answers

What is the income effect?

Change in quantity demanded due to a change in the price that alters a consumer's real income. Signup and view all the answers

What is the substitution effect?

A change in quantity demanded due to a change in the relative price of a product. Signup and view all the answers

What are substitutes?

Products that can be used in place of other products. Signup and view all the answers

What are complements?

Products that tend to be used together. Signup and view all the answers

What would decreasing the price of a product cause?

Change in demand Signup and view all the answers

In which direction does the demand curve shift when there is an increase in demand?

Shifts right Signup and view all the answers

What can a change in the number of consumers cause?

Market demand curve to shift Signup and view all the answers

What is elasticity?

A measure of responsiveness that shows how a dependent variable such as quantity responds to an independent variable such as price. Signup and view all the answers

What is demand elasticity?

The extent to which a change in price causes a change in the quantity demanded. Signup and view all the answers

What describes demand when a given change in price causes a relatively larger change in the quantity demanded?

Elastic Signup and view all the answers

What describes demand when a given change in price causes a proportional change in the quantity demanded?

Unit elastic Signup and view all the answers

What describes demand when a given change in price causes a relatively smaller change in the quantity demanded?

Inelastic Signup and view all the answers

What is total expenditure?

Found by multiplying the price of a product and the quantity demanded. Signup and view all the answers

What is the relationship between the change in price and total expenditures for an elastic demand curve?

Inverse Signup and view all the answers

What term best describes the demand for milk if a company decreases the price of a gallon of milk by 10% and the company's total revenue falls significantly?

Inelastic Signup and view all the answers

Study Notes

Microeconomics Concepts

Microeconomics focuses on the behavior and decision-making processes of individual units, such as consumers and firms.
Essential for understanding how consumers interact in the market and how their choices affect supply and demand.

Demand and Its Representation

The demand curve is a graphical representation showing the quantity demanded at various price levels over time.
Demand encapsulates three components: desire, ability, and willingness to purchase a product.

Utility and Demand Influence

Marginal utility refers to the additional satisfaction gained from consuming one more unit of a product.
Diminishing marginal utility indicates that satisfaction decreases with each additional unit consumed.

Law of Demand

According to the law of demand, there is an inverse relationship between price and quantity demanded; lower prices typically lead to higher purchasing quantities.
The demand curve consistently slopes downward, reflecting this inverse relationship.

Changes in Demand Dynamics

A change in quantity demanded is represented by movement along the demand curve, often triggered by price changes.
The income effect describes how changes in price affect a consumer's real income and subsequently their quantity demanded.
The substitution effect accounts for changes in demand due to shifts in the relative prices of substitutes.

Types of Products

Substitutes are goods that can replace each other, while complements are products that are often used together.
A decrease in a product's price generally results in a shift to the right of the demand curve, indicating increased demand.

Factors Affecting Market Demand

Changes in the number of consumers in a market can cause the market demand curve to shift.
Demand elasticity measures how responsive the quantity demanded is to price changes.

Understanding Demand Elasticity

Demand elasticity determines the extent to which price changes influence the quantity demanded.
Elastic demand occurs when a price change leads to a relatively larger change in quantity demanded.
Unit elastic demand reflects a proportional relationship between price changes and quantity demanded.
Inelastic demand indicates minimal change in quantity demanded despite price fluctuations.

Total expenditure is calculated by multiplying the price of a product by the quantity demanded, reflecting overall revenue.
Inverse relationships exist in elastic demand, where price changes impact total expenditure in opposite directions.
If total revenue decreases significantly after a price cut (e.g., milk), the demand for that product is classified as inelastic.

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Description

Test your knowledge of key concepts in economics with these flashcards from Chapter 4. Learn about microeconomics, demand curves, and marginal utility to enhance your understanding of consumer behavior and decision-making.