Unit#2 NAMEEconomics Date/ Period
Vocabulary Activity #1 Unit #2
1. Law of Demand-an increase in a goods price causes a decrease in quantity demanded
2. Purchasing Power-the amount of money people have available to spend on goods and services
3. Income Effect- any increase or decrease in a consumers purchasing power caused by a change in price
4. Diminishing Marginal Utility- as more units of a product are consumed the satisfaction received from consuming each additional unit declines
* Copy exactly as they are written on you own paper
Paraphrase is 5 words or less
1. Law of Demand- price goes up, Quanity-demaded down
2. Purchasing Power-money to spend3. Income Effect- lower prices= more $; and
vice versa4. Diminishing Marginal Utility- more
product consumed less satisfied
Paraphrase is 5 words or less
DEMANDChapter 3
SECTION 1: Nature of Demand
Demand – the amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period
Quantity Demanded – the amount of a good or service that a consumer is willing able to buy at each particular price during a given time period
Law of Demand – an increase in a good’s price causes a decrease in the quantity demanded (inverse effect)– Income effect – how much income or purchasing power
does a consumer have– Substitution effect – tendency of consumers to substitute
a similar, lower-priced item– Diminishing marginal utility – the usefulness or the
amount of satisfaction decreases as more of the product is consumed
After 59 ½ hot dogsBefore ……
Demand schedules – lists the quantity of goods that consumers are willing and able to pay at a series of possible prices
Demand curve – shows the relationship between the price of a product and the quantity demanded on a graph
LET’S AUCTION OFF
SOME CANDY!
Demand Curve
SECTION 2: Changes in DemandWhat causes demand to
change? The determinants of demand
include:1.Consumer tastes and
preferences2.Market size3. Income4.Prices of related good5.substitute goods6.complementary goods7.Consumer expectations
SECTION 3: Elasticity of Demand
– Elastic demand – exists when a small change in a good’s price causes a major, opposite change in the quantity demanded. A good’s elasticity can change if: The product is not a necessity There are readily available
substitutes The product’s cost represents a
large portion of a consumer’s income
– Inelastic demand – exists when a change in a good’s price has little impact on the quantity demanded The product is a necessity There are few or no readily
available substitutes for the product
The product’s cost represents a small portion of the consumer’s income
Elasticity of demand – is the degree to which changes in a good’s price affect the quantity demanded by consumers