chapter 4 Flashcards
Total Revenue
The total amount of money a firm receives by selling goods or services
Demand
The desire to own something and the ability to pay for it
law of demand
states that consumers buy more of a good when it’s price decreases and less when price increases
Substitution effect
when consumers react to an increase in a goods price by consuming less of that good and more of other goods
income effect
the change in consumption resulting from a change in real income
demand schedule
a table that lists the quantity of a good a person will buy at each different price
demand curve
a graphic representation of a demand
Ceteris Paribus
all other things held constant
elasticity of demand
measure of how consumers react to a change in price
inelastic
describes demand that is not very sensitive to a change in price
elastic
describes demand that is very sensitive to a change in price
unitary elastic
describes demand whose elasticity is exactly equal to one
inferior goods
a good that consumers demand less of when their incomes increase
market demand schedule
a table that lists the quantity of a good all consumers in a market will buy at every different price
What factors affect elasticity?
- availability of substitutes
- relative importance/ limited budget
- necessities vs. luxuries
- change over time
