econChap2

Question 1

What is an individual demand curve?

Answer 1

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

Question 2

Where are price and quantity plotted on a demand curve?

Answer 2

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

Question 3

What does a downward-sloping demand curve indicate?

Answer 3

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

Question 4

What is the Law of Demand?

Answer 4

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

Question 5

How can you discover your individual demand curve?

Answer 5

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

Question 6

What is marginal benefit?

Answer 6

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

Question 7

What is the Rational Rule for Buyers?

Answer 7

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

Question 8

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

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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

Answer 10

$1.80 per day.

Question 11

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

Answer 11

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

Question 12

What is market demand?

Answer 12

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

Question 13

How is market demand calculated?

Answer 13

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

Question 14

What does a rightward shift in the demand curve signify?

Answer 14

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

Question 15

What does a leftward shift in the demand curve signify?

Answer 15

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

Question 16

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

Answer 16

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

Question 17

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

Answer 17

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

Question 18

What is a substitute good?

Answer 18

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

Question 19

What is a complementary good?

Answer 19

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

Question 20

How do expectations about future prices affect current demand?

Answer 20

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

Question 21

What are network effects?

Answer 21

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

Question 22

What are congestion effects?

Answer 22

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

Question 23

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

Answer 23

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

Question 24

What is the ‘framing effect’ in demand?

Answer 24

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

Question 25

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

Answer 25

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.

Question 26

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

Answer 26

The Law of Demand.

Question 27

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

Answer 27

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

Question 28

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

Answer 28

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

Question 29

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

Answer 29

Both equilibrium price and quantity increase.

Question 30

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

Answer 30

Both equilibrium price and quantity decrease.

Question 31

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

Answer 31

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.

Question 32

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

Answer 32

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.

Question 33

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

Answer 33

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

Question 34

What is an example of a substitute good?

Answer 34

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

Question 35

How can advertising influence demand?

Answer 35

By changing consumer preferences to increase demand for advertised products.

Question 36

What is the effect of network effects on market demand?

Answer 36

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

Question 37

What is the effect of congestion effects on market demand?

Answer 37

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

Question 38

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

Answer 38

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

Question 39

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

Answer 39

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

Question 40

How do sunk costs relate to demand decisions?

Answer 40

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

Question 41

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

Answer 41

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

Question 42

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

Answer 42

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

Question 43

How do expectations about future prices create substitute goods?

Answer 43

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

Question 44

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

Answer 44

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