Micro7SG

Micro7SG - The demand curve is downward sloping because of...

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ECO 2023 Principles of Microeconomics Chapter 7 Demand and Consumer Choice Key Terms: Law of diminishing marginal utility Marginal benefit Substitution effect Income effect Price elasticity of demand Normal good Inferior good 4 Goals: #1 - List the key factors influencing consumer behavior. 5 factors dictate consumer behavior: 1) limited income causes choices 2) decisions are made purposefully 3) goods can be substituted for each other 4) decisions are made without perfect information 5) diminishing marginal utility applies. #2 - Apply the concept of marginal utility to determine how a demand curve is derived. The demand curve represents a consumer’s willingness to pay and the willingness decreases as more of a good is obtained.
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Unformatted text preview: The demand curve is downward sloping because of the income and substitution effects. #3 - Comprehend and calculate elasticity of demand. Elasticity of demand measures the responsiveness of consumers to a change in price. In addition to the formula, an inelastic demand curve is relatively steep and an elastic curve is relatively flat. #4 - Relate demand elasticity to total revenue. The reason elasticity is important is because of its relationship to total revenue (total expenditure by the consumer). More specifically, when demand is inelastic, price and total revenue move in the same direction. When demand is elastic, price and total revenue move in the opposite directions....
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This note was uploaded on 04/13/2008 for the course ECO 2023 taught by Professor Mccaleb during the Spring '08 term at FSU.

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