Demand: Thinking Like a Buyer Flashcards
What is demand?
The willingness and ability for a consumer to purchase a good/or service at a prevailing price in a given period of time
What is the law of demand?
The quantity demanded for a good/or service is higher when the price is lower, hence why demand curve is downward sloping
Other things can influence demand not just price and quantity, what reminds us of this?
The interdependence principle
What is the rational rule for buyers?
Keep buying until price = marginal benefit
When should you buy more of an item?
When the marginal benefit is greater than (or equal to) the price
Why is your demand curve downward sloping?
Diminishing marginal benefit - important phenomenon - the satisfaction derived from consuming each extra unit of a good/or service yields a smaller marginal benefit, hence why curve is downward sloping. That is why you are willing to purchase only if price is lower.
List 5 factors that affect individual/market demand
Income Preferences (Advertising, Taste, Seasons) Substitutes/Compliments Expectations Congestion/Network Effects
List factor that affects only the market demand
The type and number of buyers
What are network effects?
A good/or service becomes more useful because other people use it. If more people buy a good, leads to an increase in the demand for the good
What are congestion effects?
A good/or service becomes less valuable because other people use it. If everyone uses the road at the same time, then that makes the road less desirable to use, thus decreasing demand
When there is a change in price, it’s a …..
movement along the demand curve
When it’s a change in factors, it’s a shift…..
along the demand curve
