Chapter 3 - Demand Flashcards
What is demand?
quantity of a good a consumer is willing and able to purchase at various prices
What is the Law of Demand?
The law of demand states that Quantity demanded and Price are inversely related
What are the three axioms of consumer choice?
Substitutability, Declining Marginal Value, People are Rational
Define Substitutability
All goods have value and those of the same value can be substituted
How do you determine market demand?
Add together individual quantities demanded at a given price
Which direction is a shift when demand decreases?
Left
Which direction is a shift when demand increases?
Right
What is the difference between a change in demand and a change in the quantity demanded?
Change in demand shifts the entire curve.
Change in quantity demanded shifts a point on a curve without moving the line itself
List the five causes of demand change
Income, Prices of related goods, Expectations, # of buyers, and Tastes and Preferences
What is a normal good?
A good whose demand rises when income rises and vice versa
What is an inferior good?
A good whose demand rises when income falls and vice versa
What are substitutes?
Goods that yield similar services
What are complements?
goods that are consumed jointly
How do price expectations effect demand?
Price expected to rise = increased demand
Price expected to fall = decreased demand
How do income expectations effect demand?
Income expected to rise = increased demand for normal good and decreased demand for inferior good
