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?
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What is diminishing marginal utility?
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More of a product will be purchased at low prices than at high ones.
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In what direction is the demand curve always sloping?
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What three things must exist in order for there to be demand?
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What is illustrated by movement along the demand curve?
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What is the income effect?
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What is the substitution effect?
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What are substitutes?
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What are complements?
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What would decreasing the price of a product cause?
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In which direction does the demand curve shift when there is an increase in demand?
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What can a change in the number of consumers cause?
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What is elasticity?
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What is demand elasticity?
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What describes demand when a given change in price causes a relatively larger change in the quantity demanded?
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What describes demand when a given change in price causes a proportional change in the quantity demanded?
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What describes demand when a given change in price causes a relatively smaller change in the quantity demanded?
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What is total expenditure?
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What is the relationship between the change in price and total expenditures for an elastic demand curve?
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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?
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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.
Financial Terms Related to Demand
- 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.
