Chapter 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

when other market conditions change

the demand curve shifts

if the only thing changing is the price

the movement is along the demand curve

Market Demand

the sum of the quantity demanded by each person

normal good

demand for this good increases as income increases

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