Chapter 4 - Consumer Demand Flashcards
What is demand?
The ABILITY and WILLINGNESS to buy specific quantities of a good at alternative prices in a given time period
What is MARKET demand?
The TOTAL QUANTITIES of a good or service people are willing and able to buy at alternative prices in a given time period. it is the SUM of all individual demands
What are the 2 determinants of demand?
- Sociopsychiatric Explanation
- Economic explanation
Describe the “economic explanation” of demand
Willingness and ability to pay, market demand for a specific product is determined by:
Taste
Income
Expectations
Other goods
Number of consumers in the market
What is the utility theory?
The more pleasure a product gives, the higher price buyers are willing to pay
“Utility”
Satisfaction
What is the definition of utility?
Pleasure or satisfaction obtained from a good or service
What is marginal utility
Change in total utility obtained by consuming one additional (marginal) unit of a good or service
What is total utility
Amount of satisfaction obtained from ENTIRE consumption of a product (sum of all marginal utilities)
When determining what to buy for the highest utility possible, divide what by what to find ACTUAL marginal utility?
marginal utility/price
As long as marginal utility is _______, total utility will increase
positive
Total utility will only decrease when ..?
Marginal utility is a negative number
What is the Law of diminishing marginal utility?
Marginal utility of a good declines as more of it is consumed in a given time period. only applies in a SHORT TIME PERIOD situtation
What is on the x and y axis for the graph of marginal utility?
y axis: marginal utility
x axis: quantity
What is on the x and y axis for the graph of total utility?
y axis: total utility
x axis: quantity