MICRO CH2

Question 1

Preferences

Answer 1

The wants, and the intensity of it.

Question 2

Demand

Answer 2

Consumer’s willingness and ability to pay for a particular product or service.

Pay, Cost means opportunity costs.

Demand is NOT just what people want, it’s when they put their money(or time or anything else) where their mouth is.

Question 3

Marginal Benefit example

Answer 3

Gatorade after work out session.

You are dying for the crispy cold drink is the initial circumstance.

1st: Amazing, Huge marginal benefit.
2nd: Great, Big marginal benefit.
3rd: Meh
4th: I feel full, small marginal benefit
5th: Ima die and so on.

What is the ADDITIONAL benefit for the individual choices ahead going to be? If it outweighs the opportunity cost, go for it. If it doesn’t, then don’t.

Question 4

Smart decision study or friend example

Answer 4

A smart decision to study or not doesn’t depend on the total value of all hours spent on studying, or the average.

It is ONLY the MARGINAL value of the additional time spent studying.

Friend comes in to room, shouts is your stupid economics course more important than I am?

If the next few hours spent studying is more valuable than the few hours spending time with the friend, the answer is yes, the hours studying has more MARGINAL BENEFIT than the hours spent with the friend.

Question 5

Diamond-Water Paradox

Answer 5

The observation that things with the greatest value in use sometimes have little value in exchange and things with little value in use sometimes have the greatest value in exchange DUE TO MARGINAL BENEFITS, NOT THE TOTAL BENEFIT.

Waters keep you alive, HUGE total benefit but are very common and not scarce at all, low marginal benefit to buying water.

Diamonds are nothing but mineral, but they are very rare and has high marginal benefit compared to water.

So, the diamond is more expensive.

Question 6

Quantity demanded

Answer 6

The amount you actually plan to buy at a given price.

Your buying decision, the amount you actually plan to buy at a given price changes with the price changing.

Change in price changes quantity demanded.

ex) I drive. I pay gas fees. If the price is high, I buy less at a time. if the price is low, then i buy more. Simple logic.

Question 7

Market demand

Answer 7

The sum of demands of all individuals willing and able to buy a particular product or service in a market.

Question 8

Law of Demand

Answer 8

If the price of a product or service rises, QUANTITY DEMANDED decreases other things remaining as a constant.

Question 9

Demand Curve

Answer 9

Shows the relationship between price and QUANTITY DEMANDED, other things remaining constant.

Has PRICE on the y-axis, and QUANTITY on the x-axis.

Demand curves can be straight lines or curves, but they all slope downward to the right, because as PRICE falls, the QUANTITY DEMANDED increases.

Question 10

Reading a Demand Curve

Answer 10

Reading Demand curve

go over from price, down to quantity demanded.

Rise in price $1 causes a decrease in quantity demanded of 2000 cubic meters of water per month.

Question 11

Reading a Marginal Benefit Curve

Answer 11

Reading Marginal benefit curve

go up from the quantity demanded, over to the price.

To find the maximum price people are willing and able to pay for the 3000th cubic meter of water, is 2 dollars.

How an increase in quantity from 3000 to 4000 decreased marginal benefit and the willingness and ability to pay?

$2 is the most someone is willing and able to pay for the 3000th cubic meter, $1.50 is the most someone is willing and able to pay for the 4000th cubic meter of water.

the 4000th cube meters of water compared to the 3000, provides a decreased marginal benefit by 0.50$, because of the increase in 1000 cubic meters in the quantity.

Question 12

Changes in Quantity Demanded and Demand

Answer 12

If the price of a product or service changes, that affects QUANTITY DEMANDED.

If ANYTHING ELSE CHANGES, that affects DEMAND, and is represented graphically by a shift of the ENTIRE DEMAND CURVE.

Question 13

How change in Preferences change demand

Answer 13

The more intense you want something, the more you will be willing to pay.

Businesses advertise their products and brand to make them more preferable to potential customers, raising the demand for their products.

Increase in preferences cause an increase in DEMAND.

NOT!!!!!! QUANTITY DEMANDED. <= this shit only changes from the change in price.

Question 14

How changes in prices of related products change demand

Answer 14

Substitutes price rise: Increase in demand for the related product.

(Coke price skyrocket: Pepsi demand goes up.)

Complementary price fall: Increases demand for the related product, since the cost of using both products together decreases.

(Music players price fall: Rise in demand for headphones)

Question 15

Substitutes

Answer 15

Products or services used in place of each other to satisfy the same want.

ex) 
Coke, Pepsi 
Butter, Margarine
Pizza hut, Domino's
Mc.Donald's, Burgerking

Question 16

Complements

Answer 16

Products or services that are used together to satisfy the same want

ex) 
Tennis balls and Tennis Rackets 
Gasoline and Cars
Game consoles and Games
Computer and Softwares 
Headphones and Music players

Question 17

How change in Income affects in demand

Answer 17

If more income: more able to be able to pay for things.

Normal goods: Increase in demand.

(Normal goods are the things you buy more of when your income increases, like a car, phones, books etc.)

Inferior goods: Decrease in demand

(Inferior shit like Kraft Dinner or shit canned food, since you couldn’t afford a quality meal. But not anymore cause you got money.)

Opposite: Decline in Normal goods and increase in demand for inferior goods.

Question 18

Expected Future prices affecting demand

Answer 18

If gas is going to be expensive tomorrow, you buy gasoline today.

If gas is going to be cheaper tomorrow, you wait until tomorrow.

Simple shit.

Question 19

Number of Consumers affecting demand

Answer 19

The more people, the more demand there is going to be for a product in the market.

There is 100 people in a village, and suddenly 300 come in. What’s going to happen to the demand for water? Of course increase.

Question 20

The factors that change Demand

Answer 20

Change in PREFERENCES
Change in PRICE OF RELATED PRODUCTS
Change in INCOME
Change in EXPECTED FUTURE PRICES
Change in the NUMBER OF CONSUMERS

PPIEN
Pen Pineapple In Every Nation = DEMAND FACTORS

Question 21

Law of Demand and Changes in Demand

Answer 21