Economics Test Ch. 4 Demand

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Questions and Answers

Which of the following statements is accurate?

When two goods are complementary, increased demand for one will cause increased demand for the other. (correct)

If two goods are substitutes, increased demand for one will cause increased demand for the other.

When two goods are complementary, increased demand for one will cause decreased demand for the other.

A drop in the price of one good will cause increased demand for its substitute.

If the price of a good rises and income stays the same, what is the effect on demand?

Fewer goods are bought (correct)

Demand stays the same

More goods are bought

The prices of other goods drop

The law of demand states that:

Consumers will buy more when a price increases.

Consumers will buy more when a price decreases. (correct)

Price will not influence demand.

Consumers will buy less when a price decreases.

Which of the following does not cause a shift of an entire demand curve?

A change in price Signup and view all the answers

What effect does the availability of many substitute goods have on the elasticity of demand for a good?

Demand is elastic Signup and view all the answers

What does elasticity of demand measure?

How much buyers will cut back or increase their demand when prices rise or fall Signup and view all the answers

What is demand?

The desire, ability, and willingness to buy a product. Signup and view all the answers

What is the law of demand?

The quantity demanded varies inversely with its price. When the price increases, the demand decreases. Signup and view all the answers

What is a demand schedule?

A table that lists the quantity of a good a person will buy at each different price. Signup and view all the answers

What is a demand curve?

A graphical representation of a demand schedule showing the quantity demanded at each price. Signup and view all the answers

What is a substitute?

Goods used in place of another. Signup and view all the answers

What is a complement?

Two goods that are bought and used together. Signup and view all the answers

What is marginal utility?

Extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product. Signup and view all the answers

Why does marginal utility diminish as consumers receive more of a product?

Our satisfaction begins to decline. Signup and view all the answers

What causes a change in quantity demanded of a product?

Price changes the quantity demanded of a product. Signup and view all the answers

How is change in quantity demanded shown on a demand curve?

Results in a shift along the demand curve. Signup and view all the answers

What is the substitution effect?

The change in quantity demanded because of the change in the relative price of the product. Signup and view all the answers

What is the income effect?

The change in quantity demanded because of a change in price that alters consumers' real income. Signup and view all the answers

What is a change in demand?

Causes the entire demand curve to shift; to the right to show an increase, to the left to show a decrease in demand. Signup and view all the answers

What is a change in quantity demanded?

Movement along the original demand curve. Signup and view all the answers

List the non-price factors that cause a change in demand.

Consumer Income, Consumer Tastes, Substitutes, Complements, Number of Consumers, Expectations. Signup and view all the answers

What is elasticity?

A general measure of responsiveness, indicating how a dependent variable responds to a change in an independent variable. Signup and view all the answers

What is demand elasticity?

The extent to which a change in price causes a change in the quantity demanded. Signup and view all the answers

What is inelastic demand?

A given change in price causes a relatively smaller change in the quantity demanded. Signup and view all the answers

What is unit elastic?

When the quantity demanded changes the same percentage as the price. Signup and view all the answers

List the determinants of demand elasticity.

Can the purchase be delayed? Any substitutes? Using a large portion of income? Signup and view all the answers

When price goes up...

Quantity demanded goes down. Signup and view all the answers

When price goes down...

Quantity demanded goes up. Signup and view all the answers

How do you calculate elasticity?

% change in QD/% change in P. Signup and view all the answers

What is an inferior good?

As income increases, the demand for this type of good decreases. Signup and view all the answers

What is a normal good?

As income increases, the demand for this type of good increases. Signup and view all the answers

Study Notes

Demand and Consumer Behavior

Complementary goods see increased demand for both when demand for one rises.
A rise in a good's price, with stable income, generally results in fewer goods being purchased.
The law of demand indicates that consumers buy more of a product when its price decreases.

Demand Curve Dynamics

A change in price alone does not shift the demand curve; shifts are caused by factors such as income, consumer expectations, or population size.
Availability of substitute goods makes demand elastic; demand changes significantly with price variations.
Buyers will adjust their demand significantly when prices rise or fall, indicating the responsiveness measured by elasticity.

Understanding Demand Concepts

Demand is defined as the desire, ability, and willingness of consumers to buy a product.
Demand schedule is a table displaying quantities demanded at various prices, while the demand curve graphically represents this relationship.
Substitutes can replace one another, while complements are goods consumed together.

Marginal Utility and Demand Changes

Marginal utility refers to the added satisfaction from consuming an additional unit, which tends to diminish over time.
Demand changes due to price shifts, which can be demonstrated by movement along the original demand curve.

Effect Influences on Demand

The substitution effect refers to the change in demand resulting from relative price changes.
The income effect occurs when price changes impact consumers' real income, affecting their purchasing behavior.

Factors Influencing Demand Changes

Changes in demand shift the entire demand curve; a rightward shift indicates increased demand, while a leftward shift indicates decreased demand.
Non-price factors influencing demand include consumer income, tastes, availability of substitutes, complementary goods, population size, and expectations.

Elasticity and Its Types

Elasticity measures responsiveness; demand elasticity specifically assesses how quantity demanded changes with price fluctuations.
Inelastic demand means that price changes lead to smaller adjustments in quantity demanded.
Unit elastic demand occurs when percentage changes in price and quantity demanded are equal.

Price and Quantity Relationship

Increasing prices result in decreased quantity demanded, while decreasing prices result in increased quantity demanded.

Calculating and Understanding Elasticity

Elasticity is calculated by the formula: % change in quantity demanded / % change in price.
Inferior goods see decreased demand as income rises, contrary to normal goods, which experience increased demand with rising income.

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Description

Dive into the intricacies of demand in economics with our quiz on Chapter 4. Test your understanding of concepts like complementary and substitute goods, and see how price changes can affect demand. Perfect for brushing up on key economic principles!