Chapter 2

The demand curve is downward sloping because

a reduction in the price of a good causes individuals to increase their purchase of that good

rightward is an increase in demand

leftward is a decrease in demand

demand curve is also

marginal benefit curve

change in price is

movement along the demand curve

shift in the demand curve

movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good

market demand curve

plots the total quantity of a good demanded by the market (across all potential buyers) at each price (survey data determines market demand curves)

price, vertical axis

quantity, horizantal axis

other market conditions change

shifts in the demand curve

diminishing marginal benefit

the marginal benefit of each additional item is smaller than the marginal benefit of the previous item

a change in price causes a movement along the demand curve

yielding a change in the quantity demanded

choosing the best quantity to buy

- focus on the marginal benefit of one more (additional benefit of one more) - apply the core principles to make good buying decisions - marginal - smaller decisions - one more -cost-benefit - benefits exceed cost? -opportunity-cost - or what? - compare to next best alternative

6 factors shifting the demand curce

1. income 2. preferences 3. prices of related goods 4. expectations 5. congestion and network effects 6. the type and number of buyers (only shifts market demand)

individual supply curve

A graph plotting the quantity of an item that a business plans to sell at each price. (holds other things constant, downward-sloping)

The rational rule for buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price -follow the rule - increase economic surplus -keep buying until price equals marginal benefit

Law of Demand

consumers will buy more of a good when its price is lower and less when its price is higher