CHAPTER 2

Individual Demand:Law of Demand: When the price rises, Qd decreases. When price falls, Qd increases.

Price is the MC

First 3 principles: MP, C-B, OCP

Market Demand: Aggregating all of the demand (for a single market).

Demand is shifted with interdependence

Individual Demand Curve: Graph plotting the quantity of an item someone is willing to buy at each price.

The MB curve is your Demand curve Diminishing Marginal Benefit the reason MB is downward sloping

Estimating Market Demand: Survey a small part of your customers Add up the total quantity Apply that to the population Plot it

Changing price causes movement along the demand curve

Network effect: If more people buy a product, your demand for it increases. Ie: social media Congestion effect: If more people buy a product, your demand for it decreases. Ie: Chick-Fil-A Line

Supply:

Law of supply – the higher the price, the higher the quantity supplied. Individual Supply Curve is for a single business,

MC curve is supply curve; MB curve is demand curve

As sellers experiment, they follow the core principles of economics Survival of the fittest weeds out bad managers

Input prices Technology Prices of related goods – substitutes in production (making new stuff) or complements in production (selling a byproduct of your good) Expectations

Number of sellers only shifts market supply