Chapter 6 - Market fundamentals: demand

Question 1

what is demand?

Answer 1

we consider competitive markets, where the choices of individual consumers do not affect the price in the market – consumers are price takers

Question 2

how to measure benefit?

Answer 2

The benefit a consumer gets is also their willingness to pay (WTP).
The maximum price a consumer will pay for a good is equal to the benefit they anticipate getting from the item (in money terms).

Question 3

Generally, we expect marginal benefit to ?

Answer 3

decline with each additio`nal unit consumed (declining or diminishing MB).

Question 4

When the consumer buys many units of a good, typical to have a

Answer 4

a continuous (smooth) MB curve

Question 5

how to derive individual demand curve?

Answer 5

use a consumer’s marginal benefit curve

Question 6

An individual’s demand is the

Answer 6

the quantity of a good or service that a consumer is willing and able to buy at a certain price.

Question 7

the individual demand curve traces out all combinations of

Answer 7

(a) market price and (b) individual demand at that price, holding everything else constant.

Question 8

A consumer will purchase units of the good up until the point where

Answer 8

P = MB

Question 9

A demand curve represents

Answer 9

how much a consumer is willing and able to buy at different prices

Question 10

law of demand

Answer 10

The downward slope of the demand curve means that a consumer consumes fewer units when the price is higher. This negative relationship between price and quantity demanded

Question 11

The demand curve is derived by assuming that only price and quantity can change.
If there is a change in the price/quantity

Answer 11

there will be a movement along the demand curve

Question 12

‘increase in the quantity demanded’.

Answer 12

If there is a movement downwards along the demand curve

Question 13

‘decrease in the quantity demanded’.

Answer 13

If there is a movement up along the demand curve

Question 14

A demand curve is drawn assuming all other relevant factors (other than the price of the good itself and the resulting quantity demanded) are?

Answer 14

held constant (ceteris paribus)
These factors include the income, tastes, expectation and the prices of other related goods

Question 15

what happens if factors other than price and quantity change?

Answer 15

the demand curve itself will shift in or out.

A shift of the demand curve is called a change in demand.

Question 16

increase in demand

Answer 16

If demand shifts right

Question 17

decrease in demand

Answer 17

A shift to the left

Question 18

The market demand curve can be derived by

Answer 18

adding together the quantity demanded by each individual consumer at each price.

Question 19

change in the quantity demanded

Answer 19

to refer to shifts along the market demand curve,

Question 20

change in demand

Answer 20

to refer to a shift of the demand curve itself.

Question 21

A demand curve answers the question

Answer 21

‘if the consumer faces a certain price, what quantity would they buy?’, for a range of possible prices
only can answer this is consumer is price take - no impact on price