ECON CH 2

what in an individual demand curve?

none of the factors change except the price

what is the interdependence principle?

Your best choice depends on many other factors beyond the price (Everything is connected)

what does NOT cause a shift in a market demand curve?

change in price

what causes shifts in the demand curve?

increase and decrease in demand

what can cause a change in preference?

-life altering event (baby increases need for daycare) -marketing, infleuncers and fashion shits (stores ran out of feta and tomatoes due to viral pasta recipe) -social pressure (switching to metal instead of plastic straws) -season/weather (buying pine trees right before Christmas)

what are the four steps to estimate market demand?

1. survey: ask each person the quantity they will but at each price 2. for each price, add up total quantity demanded by all customers 3. scale up the quantites to represent the whole market 4. plot the total quantity demanded at each price

what is market demand curve

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

what is the network effect?

A product becomes more valuable the more people use it example: social media

how does an decrease in demand appear on a graph?

a shift of the demand curve to the left

What is the rational rule for buyers?

Buy more of an item if the marginal benefit of one more is greater than (or equal to) the price -your demand curve and your marginal benefit curve are the same

what is a dimishing marginal benefit?

Each additional item yields a smaller marginal benefit than the previous item (oreo example)

how does an increase in demand appear on a graph?

a shift of the demand curve to the right

What is the network effect?

When thre is a lot of other people doing something, that you are more likely to do it too (ex: joining a dating app)

What is the congestion effect?

When you want to buy something less because other people are buying it, such as the example of a busy cafe.

what is a normal good?

a good for which the demand increases as income rises and decreases as income falls

What is the law of demand?

as price increases, demand decreases

what are the characteristic of the market demand curve?

downward sloping

what are expectations after our demand for something?

expectations about the future prices or future avaiability can influence your current demand (your choices are link through time) example: buying toliet paper before a natural diaster

what is an inferior good?

goods that consumers demand less of when their incomes rise

what are complementary goods?

goods that go together well (your demand for a good will decrease if the price of a complementary good rises) example: hot dogs and hot dog buns

What are substitute goods?

goods that replace each other (your demnad for a good will increase if the price of a substiture good rises, and it will fall if the price of a substitue good falls) example: gatorade v. powerade

what are the six factors that shift a market demand curve?

income preferences prices of related goods expectations congestion/network effects the type and number of buyers

As your income increases you buy _______ inferior goods.

less

If you are willing to pay up to $8 for your first cup of coffee, the _________ of your first cup of coffee is $8

marginal benefit

what is the congestion effect?

more users lower the value of products/services example: restaurants

When you decided whether to buy a takeout for lunch or make lunch at home, you are applying the:

opportunity cost principle

When the price of an item goes down, people buy more of it because at a lower price:

some new people may be willing to enter the market

what is the law of demand?

the total quantity demanded is higher when the price is lower

When does movement along the demand curve occur?

when there is a change in price