Chapter 2 (DEMAND) Flashcards
1
Q
Law of Demand
A
When price of product increases, quantity demanded decreases and other things stay the same
2
Q
Difference between Qd and D
A
- if the PRICE of a product or servie changes, that affects quantity demanded and is represented by a movement along the UNCHANGED demand curve
- if ANYTHING ELSE changes, that affects demand and is represented graphically by a shift of the ENTIRE demand curve.
3
Q
5 Factors to Change Demand
A
Change in…
1. Preferences
2. Price of Related Products
3. Income
4. Expected Future Prices
5. Number of Consumers
4
Q
Market Demand
A
The sum of demands of all individuals willing and able to buy a particular product or service
5
Q
Inferior Goods
A
- decrease in income equals an increase in demand
- negative change
- ex: necessities
6
Q
Normal goods
A
- decrease in income equals a decrease in demand
- positive change
- ex: luxuries
7
Q
Preferences
A
Your wants and their intensities
8
Q
Demand
A
Consumer’s willingness and ability to pay for a particular product or service
9
Q
The Diamond Water Paradox
A
- what’s more valuable in providing benefit or satisfaction
Water: MB is low…TB is high
Diamonds: MB is high… TB is low
- willingness to pay depends on marginal benefit not total benefit so people are generally willing to pay more for a diamond than for water
10
Q
Equation for change in marginal benefit
A
- change in total benefit / change in quantity
Which equals… - TB1-TB0 / Q1-Q0
11
Q
Increase in Demand is a WHAT shift
A
RIGHT SHIFT
12
Q
Decrease in demand is a WHAT shift
A
LEFT SHIFT
