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Economics Chapter 3 Terms and Review

Terms in this set (17)

Principle of diminishing marginal utility
People tend to receive less and less additional satisfaction from any good or service as they obtain more and more of it during a specific period of time - i.e. the second piece of cake is not as good as the first
marginal utility schedule
a tabular model that serves as a record of the satisfaction gained from repeated experience
Marginal utility curve
a graphic representation of the marginal utility schedule
Demand
A willingness of consumers to purchase a product, and also as their act of purchasing it. - The act of Buying
Law of demand
Everything else being held constant, the lower the price charged for a good or service, the greater the quantity of it people will demand, and the higher the price, the lower the quantity they will demand.
Demand schedule
A table listing various quantities demanded at various prices.
Demand curve
expands the information int an infinite number of points. - A graphic representation of the law of demand
Change in quantity demanded (fig 3-6 p. 52)
Whenever a change in price causes a change in the number of items demanded - i.e. a store runs a sale on jeans (40% off) and the store sells double the amount of jeans they usually sell in a month - not a shift of the demand curve - curve stays the same, but consumers are willing to buy more because of lower price
Change in demand
When a demand curve shifts
Increase in demand
A rightward shift of the demand curve - buyers are willing to buy more of a good or service at any price along the curve
Decrease in demand
A leftward shift of the demand curve - buyers are willing to buy less of a good or service at any price along the curve - will happen if consumers know of a future price drop causing them to postpone buying until price drops
Normal goods
Goods that experience an increase in demand because of an increase in consumers' incomes - during a depression, the demand decreases - i.e. designer clothing
Inferior goods
Goods that experience a decrease in demand as people's incomes increase - Examples: used cars, secondhand clothing, travel on buses, powdered milk
Substitute goods
Goods that households may use in place of others - i.e. the price of beef rises, and consumers purchase more chicken or hotdogs rather than hamburgers
Complementary goods
Goods that are usually purchased or used together - i.e. peanut butter and jelly, flashlights and batteries, bacon and eggs
Four conditions that may cause a change in the demand for that product when the price remains constant
1. A change in people's income
2. A change in the price of the related goods
3. A change in the people's tastes and preferences.
4. A change in the people's expectations.
Three functions of prices
1. Transmit info
2. Provide Incentive
3. Redistribute Income
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