Questions and Answers
What is demand?
What does the law of demand state?
What is a demand schedule?
A listing of how much of an item an individual is willing to purchase at each price
What is a market demand schedule?
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What does a demand curve graphically show?
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What is the law of diminishing marginal utility?
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What is the income effect?
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What is the substitution effect?
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What does a change in quantity demanded indicate?
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What occurs during a 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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What are complements?
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What is elasticity of demand?
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What does elastic demand mean?
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What does inelastic demand mean?
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What does unit elastic demand mean?
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What is total revenue?
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What is the total revenue test?
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Study Notes
Demand Concepts
- Demand refers to the willingness and ability of consumers to purchase a good or service.
- According to the law of demand, when prices decrease, the quantity demanded increases, while an increase in prices results in a decrease in quantity demanded.
Demand Schedules
- A demand schedule illustrates the quantity of a good that an individual is willing to buy at various price points.
- A market demand schedule aggregates the willingness to purchase of all consumers at each price level.
Demand Representation
- A demand curve visually represents the data from a demand schedule, plotting price against quantity demanded.
- A market demand curve serves the same function for a market demand schedule, aggregating data for all consumers.
Consumer Behavior Principles
- The law of diminishing marginal utility indicates that the additional satisfaction from consuming each extra unit of a product diminishes over time.
- The income effect describes how changes in purchasing power influence the quantity of goods consumers buy.
- The substitution effect occurs when consumers opt for substitute goods in response to price changes, affecting demand.
Changes in Demand
- A change in quantity demanded is a shift in the amount purchased resulting from price changes.
- A change in demand occurs due to factors that prompt consumers to buy different amounts at every price level, influenced by elements beyond just price.
Goods Classification
- Normal goods see increased demand when consumer incomes rise, while inferior goods experience decreased demand under the same circumstances.
- Substitutes are goods that can replace each other, affecting demand dynamics.
- Complements are goods used together, where an increase in demand for one boosts demand for the other.
Demand Elasticity
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Elasticity of demand measures consumer responsiveness to price changes, categorized as:
- Elastic: demand significantly changes with price fluctuations.
- Inelastic: demand changes little despite price adjustments.
- Unit elastic: percentage change in price matches percentage change in quantity demanded.
Revenue Concepts
- Total revenue is the income generated by a company from sales.
- The total revenue test is a method for evaluating demand elasticity by analyzing changes in total revenue in response to price alterations.
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Description
Test your understanding of demand concepts including demand schedules and curves. Explore how consumer behavior influences market dynamics and the law of demand. This quiz aims to enhance your grasp of these fundamental economic principles.