Econ chapter 4 – Flashcards
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How does the price range affect the elasticity of demand for a product?
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Demand for a good can be inelastic at a low price, but elastic at a high price
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If prices rise, but income stays the same, what is the effect on the quantity demanded?
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The quantity of demand decreases
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What effect does the availability of many substitutes have on the elasticity of demand for a good?
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Demand is elastic
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If prices rise, but income stays the same, what is the effect on demand?
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Fewer goods are bought
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Why is the demand for milk elastic?
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Milk is a necessity, not a luxury.
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How can expectations about the future change consumer behavior?
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Immediate demand for a good will rise if it's price is expected to rise.
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How can the demand for one good be affected by increased demand for another one?
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If goods are used together, increased demand for one will increase demand for the other.
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Which of the following will happen if the price of butter goes up?
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You can buy a substitute and the quantity of demand for butter will decrease
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Why does an economist create a market demand schedule?
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to predict how people will change their buying habits when prices change
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What does it mean when you have demand for a good or service?
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You are willing and able to buy the good at the given price
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Economists say that a demand curve is accurate only as long as the ceteris paribus assumption is true. This means that
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All things other than price hold constant
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How does the substitution effect work when the price of an item drops?
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Consumers buy the item as a substitute for other things
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How does increase population affect demand?
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The demand for goods will increase- demand curve will move to the right
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How does a person's perception of a good as a necessity or a luxury affect his or her purchase of it?
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A good that is perceived as a necessity will be purchased even if the prices rises.
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What does elasticity of demand measure?
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how buyers will cut back or increase their demand when price rises or falls
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How does elasticity affect a company 's pricing policy?
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If demand is elastic at the current price, the company knows that an increase price would reduce total revenues
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How might advertising lead. To a shift in the demand curve?
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By helping to create fads and trends
