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