Econ 101: Chapter 2

Question 1

Individual demand curve

Answer 1

plots the quantity of a product that an individual will buy at each price. Summarize your buying plans and how they vary with the price.

Question 2

demand curve axes

Answer 2

P’s before Q’s
Price on the vertical axis; quantity on the horizontal axis.

Question 3

Individual demand curves are…

Answer 3

downward sloping.

as price gets lower, quantity demanded gets larger.

Question 4

The law of demand

Answer 4

the tendency for the quantity demanded to be higher when the price is lower.

Question 5

The rational rule for buyers

Answer 5

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

Question 6

price = ?? (demand curve)

Answer 6

price = marginal benefit. Therefore, demand curve is also the marginal benefit curve.

Question 7

Diminishing marginal benefit

Answer 7

the marginal benefit of each additional item is smaller than the marginal benefit of the previous item (demand curve)

Question 8

market demand

Answer 8

the purchasing decisions of all buyers taken as a whole.

Question 9

market demand curve

Answer 9

plots the total quantity of a good demanded by the market (all potential buyers) at each price

Question 10

creating a market demand curve:

Answer 10

1. survey customers to find out how much they will buy at each price.
2. add up total quantity.
3. scale up.
4. plot it as a curve.

Question 11

Market demand curve is…

Answer 11

downward sloping.

Question 12

A change in price can… (customers)

Answer 12

change who your customers are. Low prices can attract both current and new customers.

Question 13

Remember this when estimating demand:

Answer 13

consider the demand of all POTENTIAL customers.

Question 14

Change in price causes…

Answer 14

a movement along the demand curve, yielding a change in the quantity demanded.

Question 15

change in the quantity demanded

Answer 15

the change in quantity associated with movement along a fixed demand curve

Question 16

Shift in the demand curve

Answer 16

when the demand curve itself moves

Question 17

since demand curve = marginal benefit curve…

Answer 17

any factor that changes your marginal benefits will shift your demand curve.

Question 18

rightward curve shift =

Answer 18

increase in demand. quantity increases at each and every price.

Question 19

leftward curve shift =

Answer 19

decrease in demand. quantity decreases at each and every price.

Question 20

six factors that shift demand curves:

Answer 20

PEPTIC

Question 21

1st factor that shifts demand curves:

Answer 21

preferences: when your life changes, your habits and needs may change.

Question 22

2nd factor that shifts demand curves:

Answer 22

expectations: what you expect the price of a good to be through time can change demand.

Question 23

3rd factor that shifts demand curves:

Answer 23

price of related goods:
- complementary and substitute goods

Question 24

4th factor that shifts demand curves:

Answer 24

type and number of buyers: the demographics or types of buyer change MARKET DEMAND.

Question 25

5th factor that shifts demand curves:

Answer 25

income: you only have a limited amount of income to spend - normal and inferior goods

Question 26

6th factor that shifts demand curves:

Answer 26

congestion and network effects

Question 27

complementary goods

Answer 27

goods that go 'well together'. - when the higher price of one good decreases your demand for another good

Question 28

substitute goods

Answer 28

goods that can replace one another. - When the demand for any good increases if the price of its substitutes rises.

Question 29

normal goods

Answer 29

when your demand for a good increases when your income is higher.

Question 30

inferior goods

Answer 30

Goods when you’re ‘making do’. when demand increases when income decreases.

Question 31

network effect

Answer 31

a product or service becomes more useful to you as more people use it. - more useful = greater marginal benefit = greater demand

Question 32

congestion effect

Answer 32

products that become less valuable when more people use them.

Question 33

"holding other things constant"

Answer 33

noting your conclusions may change if some factor that you haven't analyzed changes.