ECONOMICS Chapter 4, Section 1 Understanding Demand - Key

1. The standard we are covering is SSEMI2. 2. Demand is the desire, ability, and willingness to own something. 3. Microeconomics is the study of the economic behavior & decision making of small units such as individuals, families, and businesses. 4. The law of demand states consumers buy more of a good when its price decreases and less when its price increases. 5. Ceteris paribus means all other things remaining equal. 6. The substitution effect is when consumers react to an increase in a goods price by consuming less of that good and more of other goods. 7. The income effect is the change in consumption resulting from a change in real income. 8. Utility is the ability of a good or service to satisfy your want for it. 9. Marginal utility is the additional satisfaction one gets from consuming an additional unit of a good. 10. The law of diminishing utility states additional units of consumption result in smaller increases in utility.

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Chapter 4 Graphs Law of Demand

Price

Quantity What does this graph represent? The Law of Demand Statement A: 1: When a goods price is lower, consumers will buy more of it Statement B: When a goods price is higher, consumers will buy less of it Statement C: ceteris paribus nothing else changes Statement D: The law of demand states that when price falls, quantity demanded rises, ceteris paribus