Chapter 2/3: Demand & Supply Flashcards
What is the Individual Demand Curve?
A graph that plots the quantity of an item that an individual plans to purchase at each price
What is another way for describing an individual’s demand curve?
drawing a person’s buying plans given current economic conditions
What does the phrase “holding all else constant” infer?
Rule out the possibility of other factors changing
What does Ceteris Paribus mean?
All other things being unchanged or constant
what does 𝑞 = 𝑓(𝑃) mean?
q = quality, f() = how the price directly influences quantity, p = price
What happens to demand when prices fall lower and lower?
Quantity demands get higher and higher
What is a change in quantity demanded or quantity supplied vs change in demand or supply?
Change in quantity demanded or quantity supplied is a movement along the curve. Change in pure supply or demand means an literal shift in the lines or curves
What does the law of Demand state?
The tendency for quantity demanded to be higher as prices fall
What four principles should you use in order to decide if and how much you want to buy something? What do each of these principles mean?
- Marginal Principle: Break down the question of ”how many litres of gas to buy?”
into a series of smaller marginal choices. - Cost-Benefit Principle: For each marginal choice, buy the additional litre of gas if the
benefits exceed the costs (or price of gasoline). - Opportunity Cost Principle: “Or what?” To accurately assess the marginal benefits
of each litre of gas, always makes a comparison to his next best alternative. - The Rational Rule for the Buyer: Buy more of an item if the marginal benefit of one
more is greater than (or equal to) the price.
T/F demand illustrates the price at which you are willing to buy each quantity?
T
Are demand curves and marginal benefit curves the same?
Yes
What is the Diminishing Marginal Benefit?
Each additional item yields a smaller marginal benefit than the previous item
Is your marginal benefit curve sloping upward or downward according to the diminishing marginal benefit theory?
The curve is downward sloping
What does Market Demand Curve mean?
A graph plotting the total quantity of an item demanded by the entire market, at each price
Individual demand curves are the building blocks of?
the market demand
What does the interdependence principle suggest?
everything is connected
What are the six factors that shift the market demand curve?
- Income
- Preferences
- Prices of related goods
- Expectations
- Congestion and network effects
- The type and number of buyers