Economics Chapter 4 Test Review

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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.

A listing of how much of an item all consumers are willing to purchase at each price. Signup and view all the answers

What does the demand curve represent?

Graphically shows the data from a demand schedule. Signup and view all the answers

What is the market demand curve?

Graphically shows the data from a market demand schedule. Signup and view all the answers

What does the law of diminishing marginal utility state?

The marginal benefit of using each additional unit of a product during a given period of time will decline. Signup and view all the answers

What is the income effect?

The change in the amount that consumers will buy because the purchasing power of their income changes. Signup and view all the answers

Define substitution effect.

A change in the amount that consumers will buy because they buy substitute goods instead. Signup and view all the answers

What does a change in quantity demanded refer to?

An increase or decrease in the amount demanded because of a change in price. Signup and view all the answers

Define change in demand.

Occurs when something prompts consumers to buy different amounts at every price. Signup and view all the answers

What are normal goods?

Goods that consumers demand more of when their incomes rise. Signup and view all the answers

What are inferior goods?

Goods that consumers demand less of when their incomes rise. Signup and view all the answers

What are substitutes?

Goods and services that can be used in place of each other. Signup and view all the answers

Define complements.

Goods that are used together, so a rise in demand for one increases the demand for the other. Signup and view all the answers

What is elasticity of demand?

A measure of how responsive consumers are to price changes. Signup and view all the answers

What is elastic demand?

What demand is considered if quantity demanded changes significantly as price changes. Signup and view all the answers

Define inelastic demand.

What demand is considered if quantity demanded changes little as price changes. Signup and view all the answers

What is unit elastic demand?

What demand is considered when the percentage change in price and quantity are the same. Signup and view all the answers

What is total revenue?

A company's income from selling its products. Signup and view all the answers

Define total revenue test.

A method of measuring elasticity by comparing total revenues. Signup and view all the answers

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.