econChap2 Flashcards
What is an individual demand curve?
A graph that summarizes the quantity an individual plans to buy at each price, typically downward-sloping.
Where are price and quantity plotted on a demand curve?
Price is plotted on the vertical axis, and quantity demanded is plotted on the horizontal axis.
What does a downward-sloping demand curve indicate?
It indicates that as the price decreases, the quantity demanded increases, and vice versa.
What is the Law of Demand?
The law of demand states that the quantity demanded of a good is inversely related to its price, holding other factors constant.
How can you discover your individual demand curve?
By surveying how much of a good you would buy at different prices and plotting these quantities against the prices.
What is marginal benefit?
The additional benefit received from consuming one more unit of a good or service.
What is the Rational Rule for Buyers?
Buy more of an item if the marginal benefit of one more unit is greater than or equal to the price.
Why is the individual demand curve also your marginal benefit curve?
Because it plots the maximum price you are willing to pay for each additional unit, reflecting your marginal benefits.
What causes the individual demand curve to be downward-sloping?
Diminishing marginal benefits, meaning each additional unit provides less benefit than the previous one.
What is the marginal benefit of the first litre of gas in Darren’s example?
$1.80 per day.
What decision should Darren make when the price of gas is $1.39 per litre?
He should buy three litres of gas per day, as the marginal benefits of the first three litres exceed the price.
What is market demand?
The total quantity of a good demanded by all consumers in the market at each price.
How is market demand calculated?
By summing the quantity demanded by each individual consumer at each price level.
What does a rightward shift in the demand curve signify?
An increase in demand, meaning at every price, a larger quantity is demanded.
What does a leftward shift in the demand curve signify?
A decrease in demand, meaning at every price, a smaller quantity is demanded.
What are the six factors that shift the demand curve, remembered by the acronym PEPTIC?
Preferences, Expectations, Prices of related goods, Type and number of buyers, Income, Congestion and network effects.
How does an increase in income affect the demand for normal and inferior goods?
It increases demand for normal goods and decreases demand for inferior goods.
What is a substitute good?
A good that can replace another in consumption, where an increase in the price of one increases the demand for the other.
What is a complementary good?
A good that is consumed together with another, where an increase in the price of one decreases the demand for the other.
How do expectations about future prices affect current demand?
If prices are expected to rise, current demand increases; if prices are expected to fall, current demand decreases.
What are network effects?
When the value of a product increases as more people use it, leading to increased demand.
What are congestion effects?
When the value of a product decreases as more people use it, leading to decreased demand.
How does the number of buyers in a market affect market demand?
An increase in the number of buyers shifts the market demand curve to the right, while a decrease shifts it to the left.
What is the ‘framing effect’ in demand?
When the way choices are presented affects decisions, potentially causing inconsistent choices based on presentation rather than actual costs and benefits.
