Individual Demand Curve
-graph that plots the quantity of an item that an individual plans to purchase at each price
Ceteris Paribus
-holding other things constant
-isolating price affect
Law of Demand
-inverse relationship between price and quantity demanded
-higher price =lower quantity of demand
-lower price = higher quantity of demand
Shifts on demand curve
-caused by changes in fathers OTHER than price
-results in movement OF demand curve ITSELF
-increase in demand -> shift RIGHT, greater quantity
-decrease in demand -> shift LEFT, lesser quantity
Market Demand
-TOTAL quantity of a good or service that all consumers in a market are willing to purchase at various price levels
-> sum of individual demands of all consumers
-DOWNward sloping curve
Rational Buying Decisons
-Consumers aim to purchase quantity where the PRICE = their MARGINAL BENEFIT
Movements along Demand Curve
-caused by changes in PRICE of good
-results in change of quantity demanded
Rational Rule For Buyer
-buy more of an item if the marginal benefit of one more is > or equal to price
Maximize Economic Surplus
-keep buying until PRICE = MARGINAL BENEFIT
Marginal Principle
-“how many” questions broken down into smaller marginal choices
Cost-Benefit
-buying the additional unit if BENEFITS > COSTS
Opportunity Cost Principle
-assess marginal benefits of each choice by comparing it to the next best alternative
Deminishing Marginal Benefit
-each ADDITIONAL UNIT has a smaller marginal benefit than the previous one
STEPS TO ESTIMATE MARKET DEMAND
1)Survey
-REPRESENTATIVE sample of potential customers
STEPS TO ESTIMATE MARKET DEMAND
2)Aggregate Demand
-for each price, ADD up TOTAL quantity demanded by all customers
STEPS TO ESTIMATE MARKET DEMAND
4)Scale Up
-scale up quantities to represent the whole market
STEPS TO ESTIMATE MARKET DEMAND
4) Plot Demand Curve
-plot total quantity demanded at each price, yielding market demand curve
FACTORS THAT SHIFT DEMAND CURVE
1.Income
-Normal goods -> demand INCREASES as income RISES
-Inferior goods -> demand DECREASES and income RISES
FACTORS THAT SHIFT DEMAND CURVE
2.Preferences
-changes in consumers tastes and preferences can lead to increased or decreased demand for certain goods
FACTORS THAT SHIFT DEMAND CURVE
3) Prices of Related Goods
- substitutes: price of a substitute good RISING, demand for ORIGINAL good may rise
-compliments: price of a complimentary good RISING,demand for original good may DECREASE
FACTORS THAT SHIFT DEMAND CURVE
4.Expectations
- if consumers expect future prices to RISE, CURRENT demand may INCREASE as they buy now to avoid higher costs later on
FACTORS THAT SHIFT DEMAND CURVE
5)Congestion and Network Effects
-as more people use a service, its value may INCREASE leading to HIGHER demand
FACTORS THAT SHIFT DEMAND CURVE
6)Types and Number of Buyers
-changes in demographic composition of the market can SHIFT DEMAND
-INCREASE in population or a CHANGE in type of buyers can lead to a RIGHT shift in the demand curve
-international trade can expand the # of buyers significantly IMPACTING demand
