Demand - AP Macroeconomics

1. Identify the slope of a typical demand curve.

   Negative slope. Reflects the inverse relationship between price and quantity demanded.

2. Identify a factor that affects elasticity of demand.

   Availability of substitutes. More substitutes make demand more responsive to price changes.

3. What type of demand exists if $E_d > 1$?

   Elastic demand. Quantity demanded responds strongly to price changes.

4. What is the law of demand?

   As price decreases, quantity demanded increases, ceteris paribus. This fundamental economic principle describes the inverse price-quantity relationship.

5. What is the formula for total revenue?

   Total Revenue = $Price \times Quantity$. Calculates total income generated from sales.

6. Define 'complementary goods'.

   Goods that are consumed together. These goods have joint consumption patterns like coffee and cream.

7. What does a positive cross-price elasticity indicate?

   Substitute goods. Price increase in one good boosts demand for its substitute.

8. What type of demand exists if $E_d < 1$?

   Inelastic demand. Quantity demanded responds weakly to price changes.

9. What is the formula for calculating price elasticity of demand?

   $E_d = \frac{\% \text{change in quantity demanded}}{\% \text{change in price}}$. Measures responsiveness of quantity demanded to price changes.

10. Identify the term for a change in quantity demanded due to a price change.

    Movement along the demand curve. Represents movement along the existing demand curve.

11. Which factor causes a shift in the demand curve?

    Change in consumer income, tastes, or prices of related goods. Non-price factors shift the entire curve left or right.

12. Define 'income elasticity of demand'.

    Measure of how the quantity demanded changes as consumer income changes. Shows how demand responds to changes in consumer purchasing power.

13. Identify the term for a change in demand due to factors other than price.

    Shift in the demand curve. Represents movement of the entire demand curve.

14. What is a demand schedule?

    A table showing the quantity demanded at various prices. It displays the relationship between price levels and corresponding quantities.

15. What is a demand curve?

    A graph showing the relationship between price and quantity demanded. It visually represents the demand schedule data as a downward-sloping line.

16. What is the vertical axis on a demand curve graph?

    Price. Price is the dependent variable in demand analysis.

17. What happens to demand when the price of a complement decreases?

    Demand for the other good increases. Lower complement prices increase consumption of both goods together.

18. What is the effect on total revenue if demand is inelastic and price increases?

    Total revenue increases. Consumers don't significantly reduce purchases despite higher prices.

19. What does a negative income elasticity indicate for a good?

    Inferior good. Demand decreases as income rises for these goods.

20. What type of demand exists if $E_d = 1$?

    Unitary elastic demand. Percentage change in quantity equals percentage change in price.

21. What does a positive income elasticity indicate for a good?

    Normal good. Demand increases as income rises for these goods.

22. What is the horizontal axis on a demand curve graph?

    Quantity demanded. Quantity is the independent variable in demand analysis.

23. What does a negative cross-price elasticity indicate?

    Complementary goods. Price increase in one good reduces demand for its complement.

24. Define 'substitute goods'.

    Goods that can replace each other in consumption. When one good's price rises, consumers switch to the substitute.

25. Which factor causes a movement along the demand curve?

    Change in the price of the good. Only price changes cause movement along the curve, not shifts.

26. Identify the main reason for a downward-sloping demand curve.

    Law of diminishing marginal utility. Additional utility decreases as consumption increases.

27. Define 'cross-price elasticity of demand'.

    Measure of how the quantity demanded of one good changes as the price of another good changes. Shows how demand for one good responds to another good's price.

28. Define 'ceteris paribus'.

    Ceteris paribus means 'all other things being equal'. This Latin phrase ensures other variables remain constant in economic analysis.

29. What is the effect on total revenue if demand is elastic and price increases?

    Total revenue decreases. Consumers reduce purchases significantly when elastic goods become pricier.

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