Week 2
What axis do price and quantity go on for individual demand curves?
Price is on the y axis Quantity is on the left Ps before Qs
congestion effect
a product or service becomes less useful as more people use it, less demand
network effect
a product or service becomes more useful as more people use it, more demand
complementary goods
goods that are commonly used with other goods, as price for one increases, demand for both decreases
substitute goods
goods that replace each other, your demand for the good will increase if the substitute price increases
all points on an indifference curve
have the same amount of utility
when other market conditions change
the demand curve shifts
if the only thing changing is the price
the movement is along the demand curve
utility is the measure of
the relative satisfaction, enjoyment, or contentment a person receives from consuming a good or service
Market Demand
the sum of the quantity demanded by each person
Six Factors that shift the Market Demand Curve
1. Income 2. Preferences 3. Prices of Related Goods 4. Expectations 5. Congestion and Network Effects 6. The Type and Number of Buyers PEPTIC
How to calculate market demand
1. Survey your customers 2. For each price, add up the total quantity 3. Scale up the quantities so they represent the whole market 4. Plot the total demand, yielding the market demand curve
The Rational Rule for Buyers
buy one more of an item if its marginal benefit is greater than (or equal to) the price
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases
inferior good
demand for this good decreases as income increases
normal good
demand for this good increases as income increases