Economics Chapter 4 Notes Review

Question 1

What is a demand curve?

Answer 1

A line on a graph showing the quantity demanded of a good or service at each possible price

Question 2

What is demand?

Answer 2

Amount of a good or service that people buy at various prices

Question 3

What is Diminishing Marginal Utility?

Answer 3

Consumers are less willing to pay as much for a 2nd or 3rd of an item as the 1st
- Consumers tire of the good or service
- Consumers will stop buying the good or service, lowering quantity demanded for that good

Question 4

What is Substitution Effect?

Answer 4

If a good or service is not available or costs too much, consumers may buy another good or service to satisfy their wants.

Question 5

What is Price Elasticity of Demand?

Answer 5

How much consumers respond to a given change in price

Question 6

What is an Elastic Demand?

Answer 6

A change in price that results in a change in quantity demanded

Question 7

What is an Inelastic Demand

Answer 7

A change in price results in little to no change in quantity demanded

Question 8

What are the three Factors Affecting Price Elasticity?

Answer 8

• Existence of substitutes
• Percentage of consumer’s total budget for the purchase of the good
• How much time consumer has to adjust to the price change