1. What’s Happening with Demand
Chapter Four Test Review

2. Willingness
and ability to buy
at a given price
Demand

3. Caused by a price change
Movement along a stable demand curve
Caused by a price change
Change in Quantity Demanded

4. When the price of a product increases I buy more quantity
When the price of a product increases I buy more quantity. When the price
rises I buy less quantity
Law of Demand

5. 1. Income Effect 2. Substitution Effect 3. Diminishing Marginal
What are the three reasons for the
L law of demand?
1. Income Effect
2. Substitution Effect
3. Diminishing Marginal
Utiltiy.

6. Income Effect The portion of a change in quantity
Demanded that is caused by a of a product changes. change in consumer’s income when the price
Income Effect

7. Subsitution Effect The portion of a change in quantity
demanded that is caused by a change in price that makes other products less costly.
Subsitution Effect

8. Diminishing Marginal Utility
Mmmm. Sushi
First one tastes best
Less usefulness or satisfaction as I consume more and more.
Diminishing Marginal Utility

9. Shown by a shift of the entire demand curve
Consumer demand for different accounts at every price that make the demand curve shift left of right.
Shown by a shift of the entire demand curve
Change in Demand

10. TRIPE or factors that cause a Change in Demand
Tastes and Preferences, Related Goods, Income, population, and expectations
Shifts the entire demand curve
TRIPE or factors that cause a Change in Demand

11. Increase in Demand P S p1 p D1 D Q q q1
D  .: P ↑ & Q ↑

12. Decrease in Demand P S p p1 D D1 Q q1 q
D  .: P↓ & Q↓

13. The additional satisfaction from consuming one more unit of a product.
Marginal Utility

14. Peanut Butter and Jelly
Goods that “go together.” Products that increase the use of other products so that an increase in the price of one decreases the demand for the
other
Complements

15. Substitutes Apples and Pears
Competing products that increase that can be used in place of each other. Products related to each other so that an increase in the price of one reduces the demand for the other.
Substitutes

16. When things are expensive money buys less
When things are cheap money buys more
Income Effect

17. When demand increases:
The demand curve shifts_____.
rightward
Equilibrium price and quantity ______
increase

18. Increase in Demand P S p1 p D1 D Q q q1
D  .: P ↑ & Q ↑

19. When demand decreases:
The demand curve shifts_____.
leftward
Equilibrium price and quantity ______
decrease

20. Decrease in Demand P S p p1 D D1 Q q1 q
D  .: P↓ & Q↓

21. Measure of responsiveness that tells us how a dependent variable, such as quantity, responds to a change in an independent variable, such as price.
Elasticity

22. Elasticity where a change in the independent variable (usually price) generates a proportional change dependent variable (quantity demanded or supplied).  
Unit Elastic

23. Type of elasticity where the percentage change in an independent variable (usually price) results in a larger change in the dependent variable (usually quantity demanded or supplied).
Elastic

24. Type of elasticity where the percentage change in an independent variable (usually price) generates a causes a less than proportionate change in the dependent variable (quantity demanded or supplied)
Inelastic

25. The three factors that determine whether a product’s demand is elastic or inelastic.
a) Are their close substitutes available. If yes then elastic. If no then inelastic. b) How important it is to your household budget. If it is expensive, then it is elastic. If it is cheap, then it is inelastic. 4) The period of time involved. If its short-term, people tend to be inelastic. Over time they adjust and can be elastic.

26. Branch of economic theory that deals with behavior and decision making by small units such as individuals and firms.
Microeconomics