Demand and Consumer Choice

Notes based on the Prof slides about consumer choice and demand

What is an individual demand curve?

A graph that plots the quantity of an item that an individual plans to purchase at each price.

What is the Law of Demand?

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

What does 'ceteris paribus' mean?

Holding other things constant.

What is the relationship between price and quantity demanded according to the Law of Demand?

As price falls, quantity demanded rises; and as price rises, quantity demanded falls.

What is the process to estimate market demand?

1. Survey individuals about their quantity demanded at various prices. 2. Aggregate the quantities for each price. 3. Scale up the quantities to reflect the entire market. 4. Plot the total quantities to create a market demand curve.

What shifts the demand curve to the right?

An increase in demand means a higher quantity demanded at every price.

What is a normal good?

A good for which demand increases as income increases.

What is an inferior good?

A good for which demand decreases as income increases.

What is a complementary good?

A good that is consumed together with another good; if the price of one rises, the demand for the other decreases.

What does the interdependence principle state?

That your choices depend on many factors beyond price.

How can expectations shift demand?

Expectations about future prices can influence current demand.

What is a network effect?

When a good becomes more valuable as more people use it.

What is a congestion effect?

When a good becomes less valuable as more people use it.

What is the difference between a shift in demand and a movement along the demand curve?

A shift in demand occurs due to factors other than price, while a movement along the demand curve occurs due to a change in the price of the good.

What are the six factors that can shift the 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.