Economics Demand Concepts Quiz

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Questions and Answers

What is demand?

The desire to have some good or service and the ability to pay for it.

What does the law of demand state?

When the price of a good or service falls, consumers buy more of it.

What is a demand schedule?

A table that shows how much of a good or service all consumers are willing and able to buy at each price in a market.

What is a demand curve?

A graph that shows how much of a good or service an individual will buy at each price. Signup and view all the answers

What does the market demand curve represent?

It shows the data found in the market demand schedule. Signup and view all the answers

What is the law of diminishing marginal utility?

The marginal benefit from using each additional unit of a good or service during a given time period tends to decline as each is used. Signup and view all the answers

What is the income effect?

A change in the amount of a product that a consumer will buy because the purchasing power of his or her income changes. Signup and view all the answers

What is the substitution effect?

The pattern of behavior that occurs when consumers react to a change in the price of a good or service by buying a substitute product. Signup and view all the answers

What is a change in quantity demanded?

A change in the amount of product that consumers will buy due to a change in price. Signup and view all the answers

What is a change in demand?

Occurs when a change in the marketplace prompts consumers to buy different amounts of a good or service 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 other goods and services to satisfy consumer wants. Signup and view all the answers

What are complements?

When the use of one product increases the use of another product. Signup and view all the answers

What does elasticity of demand describe?

How responsive consumers are to price changes in the marketplace. Signup and view all the answers

What does it mean if demand is elastic?

When a change in price leads to a relatively larger change in quantity demanded. Signup and view all the answers

What does inelastic demand mean?

When a change in price leads to a relatively smaller change in quantity demanded. Signup and view all the answers

What does unit elastic mean?

When the percentage change in price and quantity demanded are the same. Signup and view all the answers

What is total revenue?

The amount of money a company receives for selling its products. Signup and view all the answers

What is the total revenue test?

You can measure elasticity by comparing the total revenue a business would receive when offering its product at various prices. Signup and view all the answers

When prices fall, demand goes up.

True Signup and view all the answers

When prices rise, demand falls.

True Signup and view all the answers

What assumption are the demand curve and demand schedule based on?

All economic factors other than price remain constant. Signup and view all the answers

What category does Vera Wang primarily belong to?

Wedding dresses. Signup and view all the answers

What are the six factors that change demand?

Income, Market Size, Consumer Tastes, Consumer Expectations, Substitute Goods, Complementary Goods. Signup and view all the answers

What does an increase in income imply for consumer buying habits?

People can buy more. Signup and view all the answers

What happens to demand when market size shrinks?

Demand decreases. Signup and view all the answers

How do consumer tastes affect demand?

The popularity of a good or service has a strong effect on the demand for it. Signup and view all the answers

How can consumer expectations influence their buying habits?

What you expect prices to do in the future can influence your buying habits today. Signup and view all the answers

What defines unit elasticity?

The divide between elastic and inelastic demand. Signup and view all the answers

What are the three factors that determine elasticity of demand?

Substitutes, Proportion of Income, Necessity vs Luxury. Signup and view all the answers

What is the effect of having no substitutes for a good or service on its elasticity?

It tends to be inelastic. Signup and view all the answers

How does the proportion of income relate to elasticity?

Products that cost little of your income are inelastic. Signup and view all the answers

Are luxuries typically considered elastic or inelastic?

Elastic. Signup and view all the answers

What does the total revenue equation represent?

P x Q. Signup and view all the answers

Study Notes

Demand Concepts

Demand refers to the desire for a good or service combined with the ability to pay for it.
The law of demand indicates that as the price of a good falls, consumers are likely to purchase more of it.
A demand schedule presents a table showing the quantities of a good or service consumers are willing to buy at various prices.

Graphical Representations

A demand curve is a graphical illustration depicting the quantity of a good demanded at different price levels.
The market demand curve compiles data from the market demand schedule, reflecting total demand at varying prices.

Economic Principles

The law of diminishing marginal utility states that the additional satisfaction from consuming more units of a good typically declines with each unit.
The income effect explains how changes in consumers' purchasing power (due to income changes) alter their buying behavior.
The substitution effect highlights consumers' tendency to purchase substitute goods when the price of a preferred good rises.

Changes in Demand

A change in quantity demanded occurs solely due to price changes, whereas a change in demand is driven by broader market factors, like economic conditions influencing consumer preferences.
Normal goods experience increased demand when income rises, while inferior goods see decreased demand as income increases.

Product Relationships

Substitutes are goods used in place of others; a rise in the price of one often increases demand for its substitute.
Complements are products that are typically used together; increased usage of one complements the demand for the other.

Elasticity of Demand

Elasticity of demand indicates how sensitive consumer demand is to price changes; it can be elastic (large change in quantity demanded) or inelastic (small change in quantity demanded).
Unit elasticity occurs when price changes and quantity demanded change by the same percentage.

Revenue Considerations

Total revenue represents the financial intake from selling goods, calculated by multiplying price by quantity (P x Q).
The total revenue test provides insights into demand elasticity by comparing revenue across different price points.

Factors Influencing Demand Change

Demand can be influenced by income levels, market size changes, shifts in consumer tastes, expectations for future prices, and availability of substitute and complementary goods.
Growing markets typically see increasing demand, while decreasing markets lead to reduced demand.

Demand Characteristics

Consumer tastes play a pivotal role; popularity of a product can significantly impact demand.
Consumer expectations regarding price trends influence purchasing behaviors today based on anticipated future prices.
When assessing elasticity, substitutes, proportion of income spent, and the nature of the good (necessity versus luxury) are crucial factors.

Recap of Elasticity

Goods with few substitutes tend to be inelastic, while those costing little in relation to income tend to remain inelastic.
Luxuries are generally more elastic than necessities, which tend to maintain stable demand even with price changes.

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Description

Test your understanding of demand concepts in economics. This quiz covers the law of demand, demand schedules, and graphical representations like demand curves. Explore economic principles such as diminishing marginal utility, the income effect, and the substitution effect.