E112 “Demand” Terms and definitions ____ Market ____ Quantity demanded ____ Law of demand ____ Normal good ____ Inferior good ____ Substitutes ____ Complements ____ Demand schedule ____ Demand curve ____ Ceteris paribus 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. A table that shows the relationship between the price of the good and the quantity demanded A group of buyers and sellers of particular good or service A good for which, ceteris paribus, an increase in income leads to a decrease in demand Other thins being equal The claim that, ceteris paribus, the quantity demanded of a good falls when the price of the good rises Two goods for which an increase in the price of one leads to a decrease in the demand for the other A good for which, ceteris paribus, an increase in income leads to an increase in demand for a product Two goods for which an increase in the price of one leads to an increase in the demand for other A graph of the relationship between the price of a good and the quantity demanded The amount of a good that buyers are willing and able to purchase Short answer questions: 1. Discuss four types of the markets and their characteristics. What makes them different one from another? 2. Suppose there is an increase in the income of consumers. In the market for automobiles (normal good) does this event causes any change in demand or quantity demanded? What if automobiles were inferior? 3. What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car? a. Small automobiles become more fashionable. b. The price of large automobiles rises (with the price of small autos remaining the same). c. Income declines and small autos are an inferior good. d. Consumers anticipate that the price of small autos will greatly come down in the near future. e. The price of gasoline substantially drops. 4. If apples and oranges are substitutes, how an increase in the price of apples affects the demand for oranges? How can a market for pineapples be affected? 5. If consumers expect the price of shoes to rise, what will happen to the demand for shoes today? Is this change in quantity demanded or demand? 6. If pencils and paper are complements, how a decrease in price of paper will affect the demand for pencils? 6. Each of the events listed below has an impact on demand for bicycles. For each event, how demand curve is affected, what is the direction of that change? Show changes on the diagram. a. An increase in the price of automobiles b. A decrease in incomes of consumers if bicycles are normal good c. An environmental movement shift tastes toward bicycling d. Consumers expect the price of bicycles to fall in the future e. A decrease in incomes of consumers if bicycles are inferior goods f. There is a rapid increase in population growth 7. American’s tastes have shifted away from beef toward chicken. Predict how this change affects demand in the market for beef, the market for chicken, and the market for roadside hamburger stands. Illustrate your answer graphically.