Demand and Consumer Choice

A comprehensive study on demand, consumer choice, and market dynamics, focusing on shifts in demand and supply curves, principles affecting consumer behavior, and the characteristics of competitive markets.

What is individual demand?

the specific amount of a good or service that one person is willing and able to purchase at various prices. For example, if a burger cost 10$, Ali buys 1 burger. If it costs 5$, he buys 3. Higher price, lower quantity. Lower price, higher quantity.

What is market demand?

its the total amount of a good or service that all consumers in a market want and are able to buy at each different price. For example: a burger 5$. Ali buys 2, Fatima buys 3. Market demand is total demand=5 burgers.

What causes shifts in demand curves?

they happen when something other than the price of the good itself changes, making people want to buy more or less of it at every price. These 'other things' can include changes in income, tastes, expectations about the future, or the prices of related goods. For example, if a new study shows coffee is very healthy, people might want to buy more coffee at every price, shifting the entire demand curve to the right.

What is the Law of Demand?

It means that when the price of a good goes down, people buy more of it, and when the price goes up, people buy less of it. This creates a demand curve that slopes downwards. So, if the price of chocolate bars decreases, you'd likely buy more of them.

What does 'ceteris paribus' mean?

It means 'all other things being equal' or 'holding everything else constant'. It’s used to look at how one change (like price) affects demand or supply, assuming nothing else (income,preferences) changes either

How does the marginal principle apply to consumer choices?

It suggests that consumers make decisions by thinking about the extra benefit versus the extra cost of one additional unit. Instead of deciding to buy 10 cookies, you decide if buying one more cookie is worth it based on the extra satisfaction it brings compared to its cost.

What does the Cost-Benefit Principle state?

It says that you should only do something (like buying an extra item) if the extra benefits you get from it are greater than or equal to the extra costs you pay for it. For example, you should buy a second cup of coffee only if the enjoyment and energy you get from it outweigh its price.

What is diminishing marginal benefit?

It means that as you consume more and more of an item, the additional satisfaction or value you get from each extra unit becomes smaller. The first slice of pizza might be incredibly satisfying, but the fifth slice might provide much less additional enjoyment.

What steps are involved in estimating market demand?

1. Ask potential customers: Find out how much individuals would buy at different prices. 2. Add up purchases: For each price, sum the total quantities all customers would buy. 3. Expand for the whole market: Use these findings to estimate the total demand for the entire population. 4. Draw the curve: Plot these total quantities against their prices to create the market demand curve.

What are the characteristics of a market demand curve?

It usually slopes downwards, showing that more is demanded at lower prices. It reflects how much both existing customers and new customers (who might join at lower prices) collectively want to buy at different price levels. For example, a lower price for concert tickets might lead to existing fans buying more, and also entice new people to attend.

What causes movement along a demand curve?

it happens only when the price of that particular good changes. If the price of oranges goes up, people buy fewer oranges, but they are still on the same demand curve, just at a higher point.

What is an increase in demand?

it means that people want to buy more of a good or service at every single price than they did before. This is shown by the entire demand curve shifting to the right. For example, if a popular celebrity endorses a new brand of athletic shoes, more people might want to buy those shoes at any given price, causing the demand curve to shift right.

What is an example of a normal good?

They’re products that people buy more of when their income rises, and less of when their income falls. For instance, if you get a raise, you might start eating out at nicer restaurants more often, making restaurant meals a normal good.

What defines inferior goods?

They’re products that people buy less of when their income rises, and more of when their income falls. This is because they can afford better alternatives. For example, if your income goes up, you might buy less instant ramen noodles and more fresh groceries or restaurant meals.

How do complementary goods relate to demand?

They’re items that are often used together. If the price of one complementary good goes up, the demand for the other good tends to go down. For instance, if the price of hot dogs increases significantly, people might buy fewer hot dog buns, even if the price of buns hasn't changed.

What is meant by substitute goods?

They are items that can be used in place of each other. If the price of one substitute good rises, the demand for the other substitute good tends to go up, as people switch to the cheaper option. For example, if the price of butter increases, consumers might buy more margarine instead. DUPE!

How do expectations influence consumer demand?

Future expectations about prices, income, or availability can change what people buy today. For instance, if you expect a new smartphone model to go on sale next month, you might wait and not buy it now, decreasing current demand. Conversely, if you expect gas prices to rise tomorrow, you might fill up your tank today.

What are congestion and network effects?

Congestion effects mean that a good becomes less desirable as more people use it (e.g., a crowded park or a slow internet connection during peak hours). Network effects mean a good becomes more desirable as more people use it (e.g., a social media app becoming more valuable as more friends join).

How does an increase in the number of buyers affect market demand?

When there are more people who want to buy a product in the market, the overall market demand for that product increases at every price. This is shown by the entire market demand curve shifting to the right. For example, if a new housing development brings many new families to a town, the demand for local grocery store items will increase. More buyers=more product wanted=total quantity demand goes up at each price

What can cause a shift of the supply curve to the right?

It means that producers are willing and able to offer more of a good at every price than before. This can happen due to factors like lower costs of raw materials, new technologies that make production more efficient, or a larger number of sellers entering the market. For instance, if the cost of flour decreases, bakeries can afford to make and sell more bread at the same price, shifting the supply curve right.

What is the Law of Supply?

it states that, generally, when the price of a good goes up, producers are willing to supply more of it, and when the price goes down, they supply less. This results in a supply curve that slopes upwards. For example, if the price of avocados increases, groceries would supply more.

What is a perfectly competitive market?

It’s a type of market where there are many buyers and sellers, all selling identical products, and no single buyer or seller has the power to influence the market price. Think of a farmer's market where many farmers sell identical tomatoes; no single farmer can set the price higher than others otherwise ppl would go to someone else

What is marginal cost?

It’s the extra cost of making one more unit of a product. Businesses use this to decide how much to produce; they'll usually only produce an extra unit if the money they'll earn from selling it covers this extra cost. Making 10 breads=20$. Making 11=22$. Marginal cost=2$. Marginal cost=cost of one extra bread

What is meant by diminishing marginal product?

it means that after a certain point, adding more of one input (like more workers) while keeping other inputs fixed (like the amount of machinery) leads to smaller and smaller increases in total output. For instance, if you keep adding more workers to a single small pizza oven, eventually each new worker will contribute less to the total number of pizzas made because they start getting in each other's way.

What factors can shift the supply curve?

The entire supply curve can shift (meaning more or less is supplied at every price) due to factors like changes in the cost of inputs (e.g., wages, raw materials), new technologies, government taxes or subsidies, changes in the prices of other goods the producer could make, or changes in the number of sellers in the market.

What does an upward-sloping supply curve signify?

An upward-sloping supply curve shows that as the price of a good increases, businesses are willing and able to supply a greater quantity of that good. This is because higher prices often make production more profitable. For example, if the price of wheat goes up, farmers are likely motivated to grow and supply more wheat.