chapter 2: demand and consumer choice Flashcards
what is individual demand?
what you want, at each price
demand is the same as the WTP and MB
demand is represented by the letter q
what is an individual demand curve?
a graph that plots the quantity of an item that an individual plans to purchase at each price
function relating price (non-negative) and the amount of units a consumer wants to purchase
what is ceteris paribus?
when drawing an individual demand curve, all other factors that may influence demand are set constant
what are on either axes for a demand curve?
price ($/ unit) is on vertical axis, quantity (unit) is on horizontal axis
what is the law of demand?
the tendency for a quantity demanded to get higher when the price is lower
demand curves slope down
what is the general equation for a demand curve?
q = mp + b
what is diminishing marginal benefit?
each additional item yields a smaller marginal benefit than the previous item, which therefore makes the slope of a demand curve negative
what is market demand curve?
a graph plotting the total quantity of an item demanded by the entire market, at each price
what is movement along the demand curve?
a price change causes movement from one point on a fixed demand curve to another point on the same demand curve
what is a change in the quantity demanded?
the change in quantity associated with movement along a fixed demand curve
what does an increase in demand mean for the demand curve?
a shift of the curve to the right
what does a decrease in demand mean for the demand curve?
a shift of the curve to the left
what are the 6 main demand shifters?
- income
- preferences
- prices of related goods
- expectations
- congestion and network effects
- the type and number of buyers
what are the two types of goods when income is a demand shifter?
- normal good
- inferior good
what is a normal good?
refers to income demand shifting
a good for which higher income causes an increase in demand
what is an inferior good?
refers to income demand shifting
a good for which higher income causes a decrease in demand
how do preferences shift demand?
change in your preferences can shift your demand curve. this can be due to a life-altering event, marketing, social pressure, season/ weather
what are the two types of goods for related goods?
complementary goods and substitute goods
what is a complementary good?
goods that go well together.
demand for a good will decrease if the price of a complementary good rises
what are substitute goods?
goods that replace each other
demand for a good will increase if the price of a substitute good increases
how do expectations affect demand?
expectations about future prices or future availability can influence your current demand - your choices are linked through time
what is the network effect?
when a good becomes more useful because other people use it. if more people buy such a good, your demand for it will also increase
what is the congestion effect?
when a good becomes less valuable because other people use it. if more people buy such a produce, your demand for it will decrease
how do type and number of buyers affect demand?
if the composition of the market changes because of a change in demographic composition, then market demand will also change
an increase in the population over time can increase the demand for goods and services
