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ECON 1101 > econChap2 > Flashcards

econChap2 Flashcards

1
Q

What is an individual demand curve?

A

A graph that summarizes the quantity an individual plans to buy at each price, typically downward-sloping.

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2
Q

Where are price and quantity plotted on a demand curve?

A

Price is plotted on the vertical axis, and quantity demanded is plotted on the horizontal axis.

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3
Q

What does a downward-sloping demand curve indicate?

A

It indicates that as the price decreases, the quantity demanded increases, and vice versa.

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4
Q

What is the Law of Demand?

A

The law of demand states that the quantity demanded of a good is inversely related to its price, holding other factors constant.

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5
Q

How can you discover your individual demand curve?

A

By surveying how much of a good you would buy at different prices and plotting these quantities against the prices.

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6
Q

What is marginal benefit?

A

The additional benefit received from consuming one more unit of a good or service.

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7
Q

What is the Rational Rule for Buyers?

A

Buy more of an item if the marginal benefit of one more unit is greater than or equal to the price.

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8
Q

Why is the individual demand curve also your marginal benefit curve?

A

Because it plots the maximum price you are willing to pay for each additional unit, reflecting your marginal benefits.

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9
Q

What causes the individual demand curve to be downward-sloping?

A

Diminishing marginal benefits, meaning each additional unit provides less benefit than the previous one.

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10
Q

What is the marginal benefit of the first litre of gas in Darren’s example?

A

$1.80 per day.

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11
Q

What decision should Darren make when the price of gas is $1.39 per litre?

A

He should buy three litres of gas per day, as the marginal benefits of the first three litres exceed the price.

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12
Q

What is market demand?

A

The total quantity of a good demanded by all consumers in the market at each price.

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13
Q

How is market demand calculated?

A

By summing the quantity demanded by each individual consumer at each price level.

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14
Q

What does a rightward shift in the demand curve signify?

A

An increase in demand, meaning at every price, a larger quantity is demanded.

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15
Q

What does a leftward shift in the demand curve signify?

A

A decrease in demand, meaning at every price, a smaller quantity is demanded.

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16
Q

What are the six factors that shift the demand curve, remembered by the acronym PEPTIC?

A

Preferences, Expectations, Prices of related goods, Type and number of buyers, Income, Congestion and network effects.

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17
Q

How does an increase in income affect the demand for normal and inferior goods?

A

It increases demand for normal goods and decreases demand for inferior goods.

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18
Q

What is a substitute good?

A

A good that can replace another in consumption, where an increase in the price of one increases the demand for the other.

19
Q

What is a complementary good?

A

A good that is consumed together with another, where an increase in the price of one decreases the demand for the other.

20
Q

How do expectations about future prices affect current demand?

A

If prices are expected to rise, current demand increases; if prices are expected to fall, current demand decreases.

21
Q

What are network effects?

A

When the value of a product increases as more people use it, leading to increased demand.

22
Q

What are congestion effects?

A

When the value of a product decreases as more people use it, leading to decreased demand.

23
Q

How does the number of buyers in a market affect market demand?

A

An increase in the number of buyers shifts the market demand curve to the right, while a decrease shifts it to the left.

24
Q

What is the ‘framing effect’ in demand?

A

When the way choices are presented affects decisions, potentially causing inconsistent choices based on presentation rather than actual costs and benefits.

25
Q

What is the difference between a movement along the demand curve and a shift in the demand curve?

A

A movement along the curve is caused by a change in price, while a shift is caused by changes in other factors like income or preferences.

26
Q

What principle explains why people buy more of a good when its price decreases?

A

The Law of Demand.

27
Q

What role does the interdependence principle play in shifting demand curves?

A

It highlights that changes in other choices, markets, or expectations can shift the demand curve.

28
Q

How did COVID-19 affect the demand for gasoline and e-commerce?

A

Demand for gasoline decreased due to fewer travels, while demand for e-commerce increased as more people stayed home.

29
Q

What is the impact of a rightward shift in the demand curve on equilibrium price and quantity?

A

Both equilibrium price and quantity increase.

30
Q

What is the impact of a leftward shift in the demand curve on equilibrium price and quantity?

A

Both equilibrium price and quantity decrease.

31
Q

Why might an individual’s demand curve shift to the right?

A

Due to an increase in income, a change in preferences favoring the good, a decrease in the price of a complementary good, positive expectations, network effects, or an increase in the number of buyers.

32
Q

Why might an individual’s demand curve shift to the left?

A

Due to a decrease in income, a change in preferences against the good, an increase in the price of a complementary good, negative expectations, congestion effects, or a decrease in the number of buyers.

33
Q

What is an example of a normal good from Darren’s perspective?

A

Gasoline, as Darren’s demand increases with higher marginal benefits.

34
Q

What is an example of a substitute good?

A

Driving versus taking the bus; if bus prices increase, demand for driving (gasoline) may increase.

35
Q

How can advertising influence demand?

A

By changing consumer preferences to increase demand for advertised products.

36
Q

What is the effect of network effects on market demand?

A

They can increase demand as more people use the product, making it more valuable.

37
Q

What is the effect of congestion effects on market demand?

A

They can decrease demand as the product becomes less valuable when more people use it.

38
Q

How does the type and number of buyers affect market demand?

A

An increase in the number or diversity of buyers shifts the market demand curve to the right.

39
Q

What is the ‘someone else’s shoes’ technique?

A

A method to predict others’ decisions by imagining yourself in their situation and applying economic principles.

40
Q

How do sunk costs relate to demand decisions?

A

Sunk costs are irrelevant to current demand decisions as they cannot be recovered.

41
Q

Why is it important to consider all six PEPTIC factors when analyzing demand?

A

Because each factor can independently shift the demand curve, affecting overall market demand.

42
Q

What lesson can managers learn from understanding individual and market demand curves?

A

That they can forecast sales and adjust strategies based on how changes in price and other factors affect overall market demand.

43
Q

How do expectations about future prices create substitute goods?

A

If consumers expect prices to rise in the future, they may substitute current purchases for future ones, increasing current demand.

44
Q

Why do market demand curves tend to be downward-sloping like individual demand curves?

A

Because the aggregation of individual demands, all of which are downward-sloping, results in a market demand curve that is also downward-sloping.

ECON 1101 (10 decks)

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