Unit#2
Economics
NAME
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.
2.
3.
4.
Law of Demand- price goes up, Quanitydemaded down
Purchasing Power-money to spend
Income Effect- lower prices= more $; and
vice versa
Diminishing Marginal Utility- more
product consumed less satisfied
Paraphrase
is 5 words or less
Chapter 3
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
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
Before ……
After 59 ½ hot dogs


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
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
Elasticity of
demand – is
the degree to
which changes
in a good’s
price affect the
quantity
demanded by
consumers
– 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