chapter 2: demand and consumer choice Flashcards
(25 cards)
what is individual demand?
what you want, at each price
demand is the same as the WTP and MB
demand is represented by the letter q
what is an individual demand curve?
a graph that plots the quantity of an item that an individual plans to purchase at each price
function relating price (non-negative) and the amount of units a consumer wants to purchase
what is ceteris paribus?
when drawing an individual demand curve, all other factors that may influence demand are set constant
what are on either axes for a demand curve?
price ($/ unit) is on vertical axis, quantity (unit) is on horizontal axis
what is the law of demand?
the tendency for a quantity demanded to get higher when the price is lower
demand curves slope down
what is the general equation for a demand curve?
q = mp + b
what is diminishing marginal benefit?
each additional item yields a smaller marginal benefit than the previous item, which therefore makes the slope of a demand curve negative
what is market demand curve?
a graph plotting the total quantity of an item demanded by the entire market, at each price
what is movement along the demand curve?
a price change causes movement from one point on a fixed demand curve to another point on the same demand curve
what is a change in the quantity demanded?
the change in quantity associated with movement along a fixed demand curve
what does an increase in demand mean for the demand curve?
a shift of the curve to the right
what does a decrease in demand mean for the demand curve?
a shift of the curve to the left
what are the 6 main demand shifters?
- income
- preferences
- prices of related goods
- expectations
- congestion and network effects
- the type and number of buyers
what are the two types of goods when income is a demand shifter?
- normal good
- inferior good
what is a normal good?
refers to income demand shifting
a good for which higher income causes an increase in demand
what is an inferior good?
refers to income demand shifting
a good for which higher income causes a decrease in demand
how do preferences shift demand?
change in your preferences can shift your demand curve. this can be due to a life-altering event, marketing, social pressure, season/ weather
what are the two types of goods for related goods?
complementary goods and substitute goods
what is a complementary good?
goods that go well together.
demand for a good will decrease if the price of a complementary good rises
what are substitute goods?
goods that replace each other
demand for a good will increase if the price of a substitute good increases
how do expectations affect demand?
expectations about future prices or future availability can influence your current demand - your choices are linked through time
what is the network effect?
when a good becomes more useful because other people use it. if more people buy such a good, your demand for it will also increase
what is the congestion effect?
when a good becomes less valuable because other people use it. if more people buy such a produce, your demand for it will decrease
how do type and number of buyers affect demand?
if the composition of the market changes because of a change in demographic composition, then market demand will also change
an increase in the population over time can increase the demand for goods and services
