Chapter 5 (1)

Question 1

BUYERS

Answer 1

► Potential buyers WANT to pay as little as possible –> but on top of this general preference–ALL buyers have a maximum price they are willing to pay

Question 2

MAXIMUM PRICE (willingness to pay)

Answer 2

► This price = the point above which the buyer says “never mind, I’d rather spend my money on something else”

► Potential buyers = want to purchase something for a price that is as low as possible & no higher than their maximum willingness to pay

Question 3

SELLERS

Answer 3

On the other hand, sellers want to sell for as high a price as possible

Question 4

WILLINGNESS TO SELL

Answer 4

is the minimum price that a seller = willing to accept in exchange for a good or service

► A seller = always wants to sell a price that is as high as possible above a certain minimum

Question 5

WILLINGNESS TO PAY AND THE DEMAND CURVE

Answer 5

► This is a demand curve!

○ If we conducted the same exercise in a bigger market & plotted out the willingness to pay of millions of people –> rather than 5 –> we’d get a smooth demand curve

► Willingness to pay is the point at which the benefit that a person will get from an item is equal to the benefit of spending the $$$ on another alternative – the opportunity cost