ECON 111 - Chapter 2: Demand and Consumer Choice

Demand

The quantity of a good or service that consumers are willing and able to buy at different prices.

Individual Demand Curve

A graph that shows the quantity of a good an individual plans to buy at each price, assuming all other factors remain constant.

Ceteris Paribus

Latin for "holding other things constant"; used when analyzing changes in price while keeping all other variables unchanged.

Law of Demand

The principle that states as the price of a good decreases, the quantity demanded increases (and vice versa), assuming all else remains the same.

Quantity Demanded

The specific amount of a good consumers are willing to buy at a given price.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Diminishing Marginal Benefit

The principle that each additional unit of a good provides less satisfaction than the previous one.

Rational Rule for Buyers

Consumers should continue buying a good as long as the marginal benefit of an additional unit is greater than or equal to its price.

Marginal Cost

The additional cost incurred from purchasing one more unit of a good or service.

Market Demand Curve

A graph showing the total quantity of a good demanded by all consumers at different prices.

Aggregation of Demand

The process of summing individual demand curves to derive the total market demand.

Movement Along the Demand Curve

A change in quantity demanded due to a change in the price of the good itself.

Survey

Ask people how much they would buy at different prices.

Summation

Add up the total quantity demanded at each price.

Scaling Up

Adjust data to represent the entire market.

Plotting

Graph the total quantity demanded at each price.

Normal Good

A good for which demand increases as income rises (e.g., organic food, vacations).

Inferior Good

A good for which demand decreases as income rises (e.g., fast food, second-hand clothes).

Complements

Goods that are consumed together (e.g., cars & gasoline). If the price of one increases, demand for both decreases.

Substitutes

Goods that can replace each other (e.g., Coke & Pepsi). If the price of one increases, demand for the other rises.

Network Effect

A product becomes more valuable as more people use it (e.g., social media apps like Instagram).

Congestion Effect

A product becomes less valuable when overused (e.g., a crowded road reduces demand for driving on it).

Demographics

Changes in population size and structure affect demand (e.g., aging populations increase healthcare demand).

Market Expansion

Opening up to international markets increases total demand for a product.

Shift in Demand Curve

A change in demand due to external factors (not price).