2. Demand- thinking like a buyer

Question 1

Individual demand curve

Answer 1

plots quantity at each price someone is willing to buy at each price
holds other things constant
building blocks of market demand

Question 2

holding other things constant

Answer 2

price influences your demand
interdependence principle reminds us not to forget these connections

Question 3

law of demand

Answer 3

the quantity demanded is higher when the price is lower (holding other things constant)

Question 3

how to determine if your decisions are the best

Answer 3

apply marginal, cost-benefit and opportunity cost principles

Question 4

the rational rule for buyers

Answer 4

buy more of an item if its marginal benefit is greater than (or equal to) the price
keep buying until price = MB

Question 5

demand curve as the marginal benefit curve

Answer 5

price = MB
the demand curve illustrates the price at which you are willing to buy each quantity

Question 6

diminishing marginal benefit

Answer 6

each additional item yields a smaller marginal benefit than the previous item

Question 7

market demand curve

Answer 7

a graph that plots the total quantity of an item demanded, by the entire market, at each price
the sum of quantity demanded by each person

Question 8

4 steps to estimating market demand

Answer 8

survey customers- ask each person the quantity they will buy at each price
add up the total quantity demanded by customers at each price
scale up the quantities demanded by the survey respondents so they represent the whole market
plot the total quantity demanded by the market at each price, yielding the demand curve

Question 9

law of demand

Answer 9

the total quantity demanded is higher when the price is lower

Question 10

price changes for new and old customers

Answer 10

when prices are low, current customers buy more and the number of customers increases

Question 11

movement along the demand curve

Answer 11

the movement from one point on a fixed demand curve to another point on the same curve is caused by a price change

Question 12

change in quantity demanded

Answer 12

the change in quantity associated with movement along a fixed demand curve

Question 13

what shifts demand curves

Answer 13

to the right- increase in demand
to the left- decrease in demand

Question 14

factors in shifting demand curves

Answer 14

individual and market- income, preferences, prices of related goods, expectations, congestion and network effects
only market demand- the type and number of buyers

Question 15

normal good

Answer 15

a good for which higher income causes an increase in demand

Question 16

inferior good

Answer 16

a good for which higher income causes a decrease in demand

Question 17

preferences

Answer 17

companies spend billions on advertising to influence our preferences
social pressure can shift your demand curve
fashion trends

Question 18

complementary goods

Answer 18

goods that go together
demand for a good will decrease if the price of complementary good rises

Question 19

substitute goods

Answer 19

goods that replace each other
demand for a good will increase if the price of substitute goods rises

Question 20

expectations

Answer 20

if you believe prices might rise, you will make your purchase today, increasing today’s demand
if you believe prices might fall, you will delay your purchase, decreasing today’s demand