Chapter 2: Demand and Consumer Choice (Vocabulary)

Vocabulary flashcards covering key concepts from Chapter 2 on Demand and Consumer Choice, including individual and market demand, the demand curve, MB, and how to estimate market demand.

Individual demand curve

A graph showing the quantity of a good an individual plans to purchase at each price, holding other factors constant (ceteris paribus).

Demand

The buying decisions of individuals (consumption choices), as opposed to selling decisions.

Market demand

The total quantity demanded by the entire market at each price (sum of all individual demands at each price).

Ceteris paribus

Latin for holding other factors constant; analysis assumes only price changes while others stay the same.

Law of Demand

The principle that as price falls, quantity demanded tends to rise, resulting in downward-sloping demand curves.

Demand curve

A graph of the relationship between price and quantity demanded; typically downward-sloping due to diminishing marginal benefit.

Shifts in demand

A change in demand caused by non-price factors (e.g., income, tastes, prices of related goods, expectations, number of buyers).

Movements along the demand curve

A change in quantity demanded caused by a price change, with the demand curve itself remaining in place.

Change in quantity demanded

The difference in quantity demanded arising from a change in price along the same demand curve.

Marginal Benefit (MB)

The additional benefit obtained from consuming one more unit; reflects willingness to pay for that unit.

Diminishing marginal benefit

The idea that the benefit from each additional unit decreases as more units are consumed.

MB and demand relationship

The marginal benefit curve is the same as the demand curve; higher MB corresponds to higher willingness to pay.

Rational Rule for Buyers

Buy more of a good if the marginal benefit from an extra unit exceeds the price; continue until MB = price.

Market demand curve construction

A downward-sloping curve showing total quantity demanded at each price, built by summing individual demands.

Step 1 of estimating market demand

Survey potential customers to determine the quantity they would buy at each price.

Step 2 of estimating market demand

Add up the quantities demanded by all customers at each price.

Step 3 of estimating market demand

Scale the survey quantities to represent the entire market (e.g., from a sample to the whole population).

Step 4 of estimating market demand

Plot the total market quantities at each price to obtain the market demand curve.

Movement vs shift distinction

Price changes cause movements along the existing demand curve; shifts are caused by non-price factors.

Demand vs quantity demanded

Demand refers to the whole relationship between price and quantity demanded; quantity demanded is a specific point on the demand curve.