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

Law of demand

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

Rational rule for buyers

buy more of an item if the marginal benefit of one or more is equal to or greater than the price

Diminishing marginal benefit

each item added yields a smaller marginal benefit than the previous item

Market demand curve

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

Movement along the demand curve

caused by change in price

Shift in the demand curve

caused by factors other than price, Shift to the right is increase in quantity demanded at each price, Shift to the left is decrease in quantity demanded at each price

Factors that cause a shift in the demand curve

preferences, expectations, prices of related goods, type and number of buyers, income, congestion and network effects

Normal good

demand increases as income increases

Inferior good

demand decreases as income increases

Complementary goods

increased price of one good causes decreased demand for another good

Substitute goods

increased price of one good causes increased demand for another good (replacement)

Network effect

a product or service becomes more useful to you as more people use it

Congestion effect

a product becomes less valuable when more people use it