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17 Cards in this Set

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What is Demand? p.79
The desire to own something and the ability to payfor it.
usually has direct link to price of something
What is the Law of Demand?
Consumers buy more of a good when its price decreases and less when its price increases.
results from two overlapping patterns of behavior, substitution effect & income
What is the Substitution Effect?
P. 80
When consumers react to an increase in a good's price by consuming less of that good and more of other goods.
Ex.If price of pizza increases, buyers may switch to tacos, salads, fruit , etc.
What is the Income Effect?
p. 80
The change in consumption resulting from a change in real income
operates when price is lowered;
What is a Demand Schedule? p.81
A table that lists the quantity of a good a person will buy at each different price.
A table comparing purchase costs between quantity and price.
What is a Market Demand Scedule? p. 83
A table that lists the quantity of a good that all consumers in a market will buy at each different price.
all demand schedules & curves reflect the law of demand.
What is a Demand Curve? p.83
A graphic representation of a demand schedule
can shift (left/right) due to changes in factors other than price (ie. population increase/decrease, factory closing, et. al.)
What does "Ceteris Paribus" mean?
A Latin phrase for "all other things held constant"
no variables other than price had changed
What is a Normal Good?
A good that consumers demand more of when their incomes increase.
buying a steak or lobster instead of hamburger meat due to a bonus or pay increase
What is an Inferior Good?
A good that consumers demand less of when their incomes increase.
goods purchased in small amounts or not at all if your income rises and you could afford a better good (i.e., used cars, generic foods, soups, etc.)
What are Complements?
p. 88.
Two goods that are bought & used together.
Ex. skis & ski boots, tennis raquets & tennis balls
What are Substitutes?
p. 88.
Goods used in place of one another.
Ex. snowboards in place of skis & ski boots
What is Elasticity of Demand?
p. 92
A measure of how consumers react to a change in price.
Formula/Calculating Elasticity is:
E = %Change in Qty. Demanded divided by %Price Change
two reactions include elastic or inelastic demands
What is an Inelastic Demand?
p. 92
Describes a demand that is not very sensitive to a change in price.
Examples are medicines.
Percentage Change = Original # - New Number divided by original # then multiplied by 100
What is Unitary Elastic?
p. 91
Describes demand whose elasticity is exactly equal to 1.
An increase or decrease in price will be met by an equal percentage decrease/increase in quantity demanded = 1.
What is Total Revenue?
p. 95.
The total amount of money a firm recieves by selling goods/services.
Determined by two factors: price of goods & quantity sold.
What factors produce Elastic Demand?
p. 95
1. availability of substitute goods
2. a limited budget that does not allow price changes
3. the perception of the good as a luxury item
Ex. 1. generics vs. name brands
2. wage reduction (fewer hours worked)
3. Choosing a Ford Taurus instead of a Lexus.