Questions and Answers
What is demand?
The willingness to buy a good or service and the ability to pay for it.
What does the law of demand state?
When prices go down, quantity demanded increases, and when prices go up, quantity demanded decreases.
What is a demand schedule?
A listing of how much of an item an individual is willing to purchase at each price.
Define market demand schedule.
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What does the demand curve represent?
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What is the market demand curve?
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What does the law of diminishing marginal utility state?
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What is the income effect?
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Define substitution effect.
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What does a change in quantity demanded refer to?
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Define change in demand.
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What are normal goods?
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What are inferior goods?
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What are substitutes?
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Define complements.
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What is elasticity of demand?
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What is elastic demand?
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Define inelastic demand.
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What is unit elastic demand?
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What is total revenue?
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Define total revenue test.
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Study Notes
Demand Concepts
- Demand: Refers to the willingness and ability of consumers to purchase goods or services.
- Law of Demand: Illustrates the inverse relationship between price and quantity demanded; as prices decrease, quantity demanded increases, and vice versa.
- Demand Schedule: A tabular representation showing the quantity of an item an individual is willing to buy at various price points.
- Market Demand Schedule: A compilation representing how much all consumers collectively demand at each price level.
- Demand Curve: A graphical representation derived from a demand schedule, displaying the relationship between price and quantity demanded.
Changes in Demand
- Change in Quantity Demanded: A variation in the amount demanded due to price fluctuations, reflected as movements along the demand curve.
- Change in Demand: Occurs when external factors lead to different purchasing amounts across all price levels, shifting the entire demand curve.
Goods Classification
- Normal Goods: Goods for which demand increases as consumer incomes rise.
- Inferior Goods: Goods that see a decrease in demand when consumer incomes increase, as consumers tend to buy higher-quality substitutes.
- Substitutes: Products that can serve as replacements for one another; an increase in price of one often leads to increased demand for the other.
- Complements: Products that are used together; an increase in the demand for one leads to an increase in demand for its complement.
Utility and Effects
- Law of Diminishing Marginal Utility: Suggests that the additional satisfaction (marginal benefit) derived from consuming extra units of a product decreases over time.
- Income Effect: The impact on consumer purchasing behavior as a result of changing purchasing power due to income variation.
- Substitution Effect: Occurs when consumers shift their purchasing toward substitute goods when the price of a preferred good increases.
Elasticity of Demand
- Elasticity of Demand: Evaluates how sensitivity consumers are to price changes; a higher elasticity indicates greater responsiveness.
- Elastic Demand: Characterizes situations where quantity demanded significantly alters with price changes.
- Inelastic Demand: Describes scenarios where quantity demanded changes minimally despite price fluctuations.
- Unit Elastic Demand: Occurs when the percentage change in price is equivalent to the percentage change in quantity demanded.
Revenue Concepts
- Total Revenue: Refers to the total income generated by a company from its goods or services sold.
- Total Revenue Test: A method for assessing the elasticity of demand by comparing changes in total revenue with changes in price.
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Description
Prepare for your Economics Chapter 4 test with this comprehensive review. This quiz covers essential concepts like demand, the law of demand, and demand schedules. Test your understanding of these key economic terms and enhance your knowledge ahead of the exam.