demand and consumer choice

Question 1

What does Ceteris Paribus mean?

Answer 1

All other factors being constant or unchanged.

Question 2

What is the Law of Demand?

Answer 2

As the price of a good decreases, the quantity demanded increases, and vice versa.

Question 3

Define Individual Demand.

Answer 3

What you want, at each price.

Question 4

Define Market Demand.

Answer 4

What the market wants.

Question 5

What can shift demand curves?

Answer 5

Factors such as income, preferences, prices of related goods, expectations, congestion and network effects, and the type and number of buyers.

Question 6

What is the difference between shifts and movements along demand curves?

Answer 6

A shift in the demand curve indicates a change in demand itself, while a movement along the curve indicates a change in quantity demanded due to price changes.

Question 7

What is a Normal Good?

Answer 7

A good for which higher income causes an increase in demand.

Question 8

What is an Inferior Good?

Answer 8

A good for which higher income causes a decrease in demand.

Question 9

What is the Interdependence Principle?

Answer 9

Everything is connected; your best choice depends on many other factors beyond price.

Question 10

List the six factors that shift the market demand curve.

Answer 10

• Income
• Preferences
• Prices of related goods
• Expectations
• Congestion and network effects
• The type and number of buyers

Question 11

What happens to demand when preferences change?

Answer 11

The demand curve can shift.

Question 12

What is a Complementary Good?

Answer 12

Goods that go well together; demand for one decreases if the price of the other rises.

Question 13

What is a Substitute Good?

Answer 13

Goods that replace each other; demand for one increases if the price of the other rises.

Question 14

True or False: A change in price causes a shift in the demand curve.

Answer 14

False.

Question 15

What is the effect of expectations on current demand?

Answer 15

Expectations about future prices or availability can influence current demand.

Question 16

What happens to demand for a good if the price of a complement falls?

Answer 16

Demand for the good increases.

Question 17

What is the Market Demand Curve?

Answer 17

The total quantity demanded by the entire market at each price.

Question 18

How do you estimate market demand?

Answer 18

Survey individuals, add up quantities at each price, scale up for the market, and plot the total quantity at each price.

Question 19

What is the difference between a change in quantity demanded and a change in demand?

Answer 19

Change in quantity demanded is due to price changes; change in demand is due to shifts in other factors.

Question 20

What is the effect of increased population on market demand?

Answer 20

Increased population can shift the demand curve to the right.

Question 21

Describe the Congestion Effect.

Answer 21

A good becomes less valuable because more people use it, decreasing demand.

Question 22

Describe the Network Effect.

Answer 22

A good becomes more useful as more people use it, increasing demand.

Question 23

What is the relationship between income and normal goods?

Answer 23

Higher income leads to increased demand for normal goods.

Question 24

What is the relationship between income and inferior goods?

Answer 24

Higher income leads to decreased demand for inferior goods.

Question 25

What is the marginal benefit of the first gallon of gas for Darren?

Answer 25

$5.00

Question 26

What is the marginal benefit of the second gallon of gas for Darren?

Answer 26

$4.00

Question 27

What is the marginal benefit of the third gallon of gas for Darren?

Answer 27

$3.00

Question 28

What is the marginal benefit of the fourth gallon of gas for Darren?

Answer 28

$2.50

Question 29

What is the marginal benefit of the fifth gallon of gas for Darren?

Answer 29

$2.00

Question 30

What is the marginal benefit of the sixth gallon of gas for Darren?

Answer 30

$1.50

Question 31

What is the marginal benefit of the seventh gallon of gas for Darren?

Answer 31

$1.00

Question 32

What does the Law of Demand state?

Answer 32

As the price falls, the quantity demanded rises; as the price rises, the quantity demanded falls.

Question 33

What does 'ceteris paribus' mean in the context of an individual demand curve?

Answer 33

Holding all other factors constant.

Question 34

What happens to Darren's demand curve if he loses his job?

Answer 34

His buying plans would change, and thus his individual demand curve would change.

Question 35

How is the individual demand curve related to the marginal benefit curve?

Answer 35

The demand curve is also the marginal benefit curve.

Question 36

What is the definition of the individual demand curve?

Answer 36

A graph that plots the quantity of an item that an individual plans to purchase at each price.

Question 37

What is the Rational Rule for Buyers?

Answer 37

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

Question 38

What does diminishing marginal benefit imply?

Answer 38

Each additional item yields a smaller marginal benefit than the previous item.

Question 39

What is the first step in estimating market demand?

Answer 39

Survey: Ask each person the quantity they will buy at each price.

Question 40

What is the total quantity demanded at a price point?

Answer 40

The sum of the quantity that each potential customer will demand at that price.

Question 41

What is the market demand curve?

Answer 41

A graph plotting the total quantity of an item demanded by the entire market at each price.

Question 42

True or False: The market demand curve is downward-sloping.

Answer 42

True

Question 43

Fill in the blank: The quantity Darren plans to buy depends on the price: the _______ the price, the _______ the quantity demanded.

Answer 43

lower; higher

Question 44

What principle should Darren apply to assess the marginal benefits of each gallon of gas?

Answer 44

Opportunity Cost Principle