Unit#2 NAME EconomicsDate/ 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 spend 3. Income Effect- lower prices= more $; and vice versa 4. Diminishing Marginal Utility- more product consumed less satisfied

Paraphrase is 5 words or less

DEMAND Chapter 3

SECTION 1: Nature of Demand 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 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 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) 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 dogs Before ……

Demand schedules – lists the quantity of goods that consumers are willing and able to pay at a series of possible prices 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 Demand curve – shows the relationship between the price of a product and the quantity demanded on a graph

Demand Curve

SECTION 2: Changes in Demand What causes demand to change? The determinants of demand include: 1. Consumer tastes and preferences 2. Market size 3. Income 4. Prices of related good 5. substitute goods 6. complementary goods 7. 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