chapter 2: demand and consumer choice

Question 1

what is individual demand?

Answer 1

what you want, at each price

demand is the same as the WTP and MB

demand is represented by the letter q

Question 2

what is an individual demand curve?

Answer 2

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

Question 3

what is ceteris paribus?

Answer 3

when drawing an individual demand curve, all other factors that may influence demand are set constant

Question 4

what are on either axes for a demand curve?

Answer 4

price ($/ unit) is on vertical axis, quantity (unit) is on horizontal axis

Question 5

what is the law of demand?

Answer 5

the tendency for a quantity demanded to get higher when the price is lower

demand curves slope down

Question 6

what is the general equation for a demand curve?

Answer 6

q = mp + b

Question 7

what is diminishing marginal benefit?

Answer 7

each additional item yields a smaller marginal benefit than the previous item, which therefore makes the slope of a demand curve negative

Question 8

what is market demand curve?

Answer 8

a graph plotting the total quantity of an item demanded by the entire market, at each price

Question 9

what is movement along the demand curve?

Answer 9

a price change causes movement from one point on a fixed demand curve to another point on the same demand curve

Question 10

what is a change in the quantity demanded?

Answer 10

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

Question 11

what does an increase in demand mean for the demand curve?

Answer 11

a shift of the curve to the right

Question 12

what does a decrease in demand mean for the demand curve?

Answer 12

a shift of the curve to the left

Question 13

what are the 6 main demand shifters?

Answer 13

1. income
2. preferences
3. prices of related goods
4. expectations
5. congestion and network effects
6. the type and number of buyers

Question 14

what are the two types of goods when income is a demand shifter?

Answer 14

1. normal good
2. inferior good

Question 15

what is a normal good?

Answer 15

refers to income demand shifting

a good for which higher income causes an increase in demand

Question 16

what is an inferior good?

Answer 16

refers to income demand shifting

a good for which higher income causes a decrease in demand

Question 17

how do preferences shift demand?

Answer 17

change in your preferences can shift your demand curve. this can be due to a life-altering event, marketing, social pressure, season/ weather

Question 18

what are the two types of goods for related goods?

Answer 18

complementary goods and substitute goods

Question 19

what is a complementary good?

Answer 19

goods that go well together.

demand for a good will decrease if the price of a complementary good rises

Question 20

what are substitute goods?

Answer 20

goods that replace each other

demand for a good will increase if the price of a substitute good increases

Question 21

how do expectations affect demand?

Answer 21

expectations about future prices or future availability can influence your current demand - your choices are linked through time

Question 22

what is the network effect?

Answer 22

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

Question 23

what is the congestion effect?

Answer 23

when a good becomes less valuable because other people use it. if more people buy such a produce, your demand for it will decrease

Question 24

how do type and number of buyers affect demand?

Answer 24

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

Question 25

when do we have a shift in demand vs. movement along demand?

Answer 25

if the only thing that is changing is the price of the good itself, then it corresponds to movement along the demand curve. this is a change in the quantity demanded

when other factors change, it is a shift in demand (left or right)