Economics Test Ch. 4 Demand

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.