Question 1

What is demand?

Accepted Answer

The quantity of a good consumers are willing and able to purchase at various prices

Question 2

What is the law of demand?

Accepted Answer

There is an inverse relationship between price of a good and quantity demanded

Question 3

What are complements and substitutes?

Accepted Answer

Complements: goods that are bought together (bacon and eggs; related demand)

Substitutes: goods that have the same purpose as another good (Pepsi and Coke; opposite demand)

Question 4

What is the substitution effect?

Accepted Answer

When changes in price for one product increase demand for a substitute product

(when Pepsi demand goes down, Coca-Cola demand rises)

Question 5

What is the income law of demand?

Accepted Answer

Income affects purchasing power and thus the demand a consumer has for a product

(as my income rises I can buy more Coca-Cola)

Question 6

What is the law of diminishing utility/satisfaction?

Accepted Answer

As you continue to consume a given product, you will get less additional utility (satisfaction) from that product

(as I drink more Coca-Cola I will lose the amount of satisfaction I get from drinking Coca-Cola)

Question 7

What is the law of complementary goods?

Accepted Answer

When two goods are complements, they have joint/related demand

(if demand for burgers decreases, so will demand for fries)

Question 8

What is the law of future expectations on demand?

Accepted Answer

If consumers believe that prices will rise in the future, demand will increase in the short-term

(if people think the cost of toilet paper will rise the demand goes up right now)

Question 9

Does the price shift the demand curve?

Accepted Answer

No, it just moves a point along the line

1.4 Demand, AP Macroeconomics Flashcards