chap 2 Flashcards
What is a market?
A market is a group of buyers and sellers of a particular good or service.
Who determines the demand for a product?
Buyers as a group determine the demand for a product.
Who determines the supply of a product?
Sellers as a group determine the supply of a product.
What is an individual demand curve?
An individual demand curve is a graph plotting the quantity of an item someone buys at each price.
What is the law of demand?
The law of demand is the tendency for quantity demanded to be higher when price is lower.
What is diminishing marginal benefit?
Diminishing marginal benefit means each additional item yields a smaller benefit than the previous one.
What is the rational rule for buyers?
Buy more of an item if the marginal benefit of one more is greater than or equal to the price.
What causes a shift in the demand curve?
Factors such as income, preferences, prices of related goods, expectations, network effects, and number of buyers.
What is a normal good?
A normal good is a good for which higher income causes an increase in demand.
What is an inferior good?
An inferior good is a good for which higher income causes a decrease in demand.
What are complementary goods?
Complementary goods are goods that are often used together.
What are substitute goods?
Substitute goods are goods that replace each other.
How do expectations affect demand?
If people expect prices to rise, current demand increases. If they expect prices to fall, current demand decreases.
What is the market demand curve?
The market demand curve is a graph plotting the total quantity demanded by the entire market at each price.
What happens when the price of complementary goods rises?
Demand for the related good will decrease.
