Key Concepts in Consumer Demand Theory

Form Value

One of the three aspects of consumer value that influence price and utility bids.

Place Value

One of the three aspects of consumer value that influence price and utility bids.

Time Value

One of the three aspects of consumer value that influence price and utility bids.

Total Value

The sum of Form Value, Place Value, and Time Value.

Revealed Preference

Shows consumers' choices based on available options, demonstrating satisfaction through biological gratification and cultural tastes.

Ordered Preferences

Consumers rank a finite set of affordable goods from most to least preferred, sometimes showing indifference between bundles.

Marginal Utility

The additional satisfaction or value from consuming one more unit of a good.

Law of Diminishing Marginal Utility

As consumption of a good increases, the additional satisfaction (utility) gained from each extra unit decreases.

Market Basket

A combination of different goods available for a consumer to choose from.

Fair Purchase Price

The highest price a consumer is willing to pay based on the perceived value or marginal benefit of the product.

Consumer Surplus

The difference between the consumer's highest price bid and the actual price paid, showing net consumer benefit.

Law of Demand

States that, all else being equal, consumers buy larger quantities at lower prices and smaller quantities at higher prices.

Demand Relation

The relationship between asking prices and quantities consumers plan to buy, corresponding to their highest price bids.

Substitution Effect

When consumers buy more of a good as its price falls relative to substitutes.

Income Effect

The increase in purchasing power when a price drop allows more units to be bought within the same budget.

Market Demand Curve

Created by aggregating individual consumer demand at each price point, showing total market demand.

Factors Shifting Market Demand Curve

Changes in disposable income, consumer preferences, price of related goods, expectations, seasonality, and the number of competitive buyers.

Normal Goods

Demand increases with income rise.

Inferior Goods

Demand decreases as income rises.

Price of Related Goods

If the price of a substitute rises, demand for the good in question increases; if the price of a complement rises, demand for the good in question decreases.

Consumer Expectations

Expected changes in income, prices, or product availability can lead consumers to adjust their current purchase plans.

Seasonality

Seasonal changes often increase demand for certain goods (like holiday items), affecting overall demand patterns and market operations.

Number of Buyers

An increase in buyers raises market demand, while a decrease lowers it, often influenced by seasonality or market entry/exit.

Change in Quantity Demanded

A response to price change.

Change in Demand

A shift due to factors like income or tastes, affecting demand at all prices.