Demand
The various quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time.
Law of Demand
People will buy more of something at lower prices than at higher prices. This is shown on a demand schedule.
Demand Schedule
A listing of how much of an item an individual is willing to purchase at each price. This data is shown graphically using a demand curve.
Demand Curve
A graph that shows how much of a good or service an individual will buy at each price. Each change in the quantity demanded is shown by a new point on the demand curve. A demand curve slopes downward and to the right.
Buying Power
As income and prices change so does the relative value of a consumer's resources. This is due to the income effect or the price effect. (buying power is also known as purchasing power)
Income Power
The impact that a change in a consumer's income has on buying power. If income increases buying power will increase. If income decreases then buying power will decrease. (Direct relationship)
Price Effect
The impact that a change in the price of products has on a consumer's buying power. If prices increase buying power decreases. If prices decrease then buying power will increase. (Inverse relationship)
Substitution Effect
The impact that a price increase has on a consumer's decision to purchase an item or to substitute that item for a similar product that meets the same need or want but at a lower cost.
Substitution
Two products that satisfy similar wants or needs and are often traded for each other when the price of one rises over the other.
Change in Income
If the amount of money that consumers have changes, the demand curves for various products will shift.
Change in Market Size
If the population changes, demand for various goods and services will also change, causing their corresponding demand curves to shift.
Change in Consumer Tastes
As the preferences of consumers change the demand curves for corresponding products will shift.
Change in Consumer Expectations
If people expect prices to change in the near future, demand curves will shift in anticipation of the change.
Availability of Substitutes
If the number of substitutes changes, the number of choices that consumers have will also change. This will cause the demand curve for the remaining products to shift.
Availability of Complementary Goods
Demand for a good with a compliment is often directly related to the demand for the complementary good. If the price of the complementary good changes then the demand curve for the other good will shift.
Complementary Goods
Goods that are often used together.
Change in the Weather or Season
Certain products are seasonal causing their demand curves to shift when the seasons change.
Elasticity of Demand
A measure of how responsive consumers are to price changes.
Elastic Demand
Price change causes a large change in quantity demanded.
Inelastic Demand
Price change causes little or no change in quantity demanded.
Total Revenue Formula
Mathematical formula used to determine if a product is elastic or inelastic. (Price X Quantity = Total Revenue)
1. If a price increase causes an increase in total revenue then the product is inelastic.
2. If a price increase causes a decrease in total rev
Availability of Substitute Goods or Services
If there is a substitute for a product that had a price increase, the change in quantity demanded for the higher priced product will be large, causing demand to be elastic.
Proportion of Income
The greater the percentage of people's budgets spent on a product, the more elastic the product's demand tends to be.
Necessities Vs Luxuries
Necessities tend to be inelastic while luxuries, or wants, tend to be elastic.
Time
The longer people have to adjust to a price change, the more elastic a product is, because people will have time to find substitutes.