Basics
This law states that as the price of a good decreases, the quantity demanded of that good rises.
What is the law of demand?
An increase in the price of a substitute good, like coffee, will cause the demand for tea to shift in this direction.
What is to the right (or increase)?
This effect explains that as the price of a good falls, your income rises, allowing you to buy more of that good.
What is the Income Effect?
This is the specific point where the quantity demanded by consumers exactly equals the quantity supplied by producers.
What is Equilibrium?
This is the specific term for the study of how people make decisions such as whether to buy one more unit.
What is Marginal Analysis?
This phrase is the basis of the law of demand, which assumes that factors like income remain constant while the price changes.
What is Ceteris Paribus?
This occurs when a change in the price of the good itself causes a change in the amount consumers purchase.
What is a movement along the curve (not a shift)?
When the price of steak rises, you buy more chicken because it is now relatively cheaper; this is an example of this effect.
What is the Substitution Effect?
If the market price is currently below the equilibrium price, the market is experiencing this condition.
What is a Shortage (or Excess Demand)?
If the price of Good A rises by 10% and the demand for Good B falls by 10%, the "Cross-Price Elasticity" is negative, meaning the goods are this.
What are Complements?
This term describes the total satisfaction received from consuming a good, which typically decreases with each additional unit consumed.
What is Utility?
If a good is Inferior, an increase in consumer income will cause the demand curve to move in this direction.
What is to the left (or decrease)?
This concept describes the difference between the maximum price a consumer is willing to pay and the market price they actually pay.
What is Consumer Surplus?
If a market has a surplus, this will happen to the price until it reaches equilibrium.
What is decrease (or fall)?
This term defines the factors that cause a shift in the demand curve.
What is determinants of demand?
While demand refers to the entire curve, this term refers to the specific number of consumers willing to buy at a particular price.
What is Quantity Demanded?
This determinant of demand is at play when a consumer decides to buy a car today because they heard prices will double next month.
What are Consumer Expectations?
To curb consumption, governments often place high excise taxes on products like cigarettes and soda, directly leveraging this fundamental economic law.
What is the Law of Demand?
If the Demand curve shifts to the right while the Supply curve remains the same, this is the resulting effect on the equilibrium price.
What is an increase?
According to the laws of supply and demand, when an agricultural boom causes the supply of a crop to sharply increase, this is the expected immediate direction of the market price.
What is down?
This type of inferior good sees an increase in demand when its price rises because the higher price consumes a larger share of a low-income buyer's budget.
What is a Giffen good?
If the price of a complementary good decreases, the demand for its partner will experience this change.
What is a rightward shift (or increase in demand)?
To calculate Marginal Utility, you divide the change in Total Utility by the change in this.
What is Quantity (or Units Consumed)?
This term refers to a government-imposed maximum price that is set below the equilibrium, often leading to permanent shortages.
What is a Price Ceiling?
This law states that as more of a good is consumed, the additional satisfaction gained from each new unit will eventually decline.
What is the Law of Diminishing Marginal Utility?