Econ 101 Terms - Chapter 2: Demand and Consumer Choice

Individual demand curve

a graph plotting the quantity of an item that someone plans to buy, at each price

Rational Rule for Buyers

buy more of an item if the marginal benefit of one more is GREATER than or EQUAL to the price (keep buying until price = marginal benefit)

Diminishing Marginal Benefi

Each additional item yields a smaller marginal benefit than the previous item (e.g. thinking about eating pizza or tacos)

Market Demand Curve

a graph plotting the total quantity of an item demanded by the entire market at each price

Movement along the demand curve

a price change causes movement from one point on a fixed demand curve to another point on the same curve

Change in the quantity demanded

the change in quantity associated with movement along a fixed demand curve

Normal goods

demand increases when income rises - When income goes up, causes demand curve to shift RIGHT/INCREASE because we want more of it (e.g. cars)

Inferior goods

demand decreases when income rises (because consumers switch to “better” alternatives).

substitutes

if an increase in the price of one causes an increase in demand for the other

complements

if an increase in the price of one causes a fall in demand for the other

Congestion effect

When a good becomes less valuable because other people use it. If more people buy such a product, your demand will decrease for it

Network effects

When a good becomes more useful because other people use it – if more people buy a good, your demand for it will also increase (e.g. iPad, social media)

Decrease in demand

Shift in demand curve to the left

Increase in demand

Shift in demand curve to the right

Shift in the demand curve 

A movement of the demand curve itself 

“Holding other things constant”

Qualifier noting your conclusions may change if some factor that you haven’t analyzed changes (ceretis paribus) 

Law of demand

tendency for quantity demanded to be higher when the price is lower