Econ. Ch. 4

Question 1

Law of demand

Answer 1

Is the price falls more quantity is demanded

Question 2

Substitution effect

Answer 2

As the price of a good increases consumers substitute less expensive goods

Question 3

Income effect

Answer 3

As the price of a good increases a consumers buying power decreases

Question 4

Demand curve

Answer 4

A curve that shows the price and quantity demand of a good

Question 5

Normal good

Answer 5

A good for which demand increases as income increases

Question 6

Inferior good

Answer 6

A good for which demand increases when income decreases

Question 7

Factors that shift demand

Answer 7

• Income
• Prices of related goods
• Expectation of future prices
• Number of buyers
• Tastes

Question 8

Ceteris paribus

Answer 8

the commonly used Latin phrase meaning ‘all other things remaining constant.’ The concept of ‘ceteris paribus’ is usually hard to isolate all the different variables that may influence or change the outcome of what you are studying.

Question 9

Complements

Answer 9

are two goods that are bought and used together.

Question 10

Substitutes

Answer 10

are goods used in place of one another.

Question 11

Elasticity of demand

Answer 11

Elasticity= %change in # demand divided by

%change in $

Question 12

Determinants of elasticity

Answer 12

When the Elasticity = 1; it is inelastic

When the Elasticity = 1; it is unitary demand