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30 Cards in this Set
- Front
- Back
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What does ceteris paribus mean?
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All other things held constant
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What is demand?
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Demand is the desire to own something and the ability to pay for it
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What is the law of demand?
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Economic law that states that consumer buy more of a good when its price decreases and less when its price increases
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What is marginal utility? What tends to happen to it as we consume more and more of a product?
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Marginal utility is the marginal satisfaction of getting an object or item. Satisfaction tends to diminish as we consume more and more of a product.
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What is the difference between the income effect and the substitution effect?
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The difference between the income effect and the substitution effect is that income effect is the change in consumption resulting from a change in real income while substitution effect is when consumers react to an increase in a good's price by consuming less of that good and more of the other good.
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What is the difference between a change in quantity demanded and a change in the demand curve?
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Quantity demand - movement along D due to a change in P.
Demand - a shift of D |
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What can cause an increase or a decrease in quantity demanded?
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a price change
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What can cause an increase or a decrease in demand (what are the determinants of demand?)
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Consumer tase and information, consumer income, price of substitute, prices of complements, expectation and number of consumers.
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What is the difference between a normal good and an inferior good?
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A normal good is a good that consumers demand more of wen their incomes increase. Inferior good is a good that consumer demand less of when their income increases.
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What are substitutes? How does a change in price of a good affect the demand for substitution of that good?
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Substitutes are used in place of each other. An increase in price of one good causes an increasing in demand for the other, vice versa.
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What are complements? How does a change in price of a good affect the demand for substitutes for that good?
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Complements are two goods that are bought and used together. An increase price of one good causes a decrease in demand for the other.
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what is elasticity of demand?
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a measure of how consumers react to a price change
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What is difference between a curve that is elastic, inelastic, and unit elastic?
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Elastic - E of D > 1
Inelastic - E of D < 1 Unit Elastic - E of D = 1 |
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If price rises, what happens to revenue if demand is elastic, inelastic or unit elastic?
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Elastic - price and revenue inversely related
Inelastic - price and revenue directly related Unit elastic - price changes do not change revenue |
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What are the determinants of elasticity of demand?
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luxuries vs. necessities, available substitute, high vs. low priced good, and time horizon
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What is supply?
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The amount of good available.
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What is the law of supply?
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tendency of suppliers to offer more at a higher price
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What is subsidy?
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a government payment that support a business or market
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What is elasticity of supply?
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a measure of the way suppliers respond to a change in price
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What determines whether supply will be elastic or inelastic?
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when supply is elastic, it react strongly to price change, when supply is inelastic it doesn't react.
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Why is the intersection of supply and demand an equilibrium?
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If there is a surplus in supply, price are lowered, and if there's a shortage of supply, prices are raised.
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What causes a surplus?
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high prices
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If there is a surplus, what happens to QD, QS, and P as equilibrium is reached?
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QD no change, QS decrease, price decreases
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What causes a shortages? If there is a shortage, what happens to QD, QS, and P as equilibrium is reached?
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Low prices cause a shortage. QD doesn't change, Qs increase and price increase
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What happens to P and Q if the demand curve increases? If it decreases?
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P increase and Q increase if demand curve increase.
P and Q decrease if demand curve decreases. |
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What happens to P and Q if the supply curve increases? If it decreases?
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P decrease and Q increase when supply increase.
P increase and Q decrease when supply curve decrease |
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What is conspicuous consumption?
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spending on goods and services acquired mainly for the purpose of displaying income or wealth.
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What is the income effect?
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the change in a consumption resulting from a change in real income
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What is the substitution effect?
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When consumer reacts to an increase in a good's price by consuming less of that good and more of another good
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How do the income and substitution effects help explain the negative slope of the demand curve?
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Income will affect people and how the want to buy the item
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