Chapter 2 (DEMAND)

Question 1

Law of Demand

Answer 1

When price of product increases, quantity demanded decreases and other things stay the same

Question 2

Difference between Qd and D

Answer 2

• if the PRICE of a product or servie changes, that affects quantity demanded and is represented by a movement along the UNCHANGED demand curve
• if ANYTHING ELSE changes, that affects demand and is represented graphically by a shift of the ENTIRE demand curve.

Question 3

5 Factors to Change Demand

Answer 3

Change in…
1. Preferences
2. Price of Related Products
3. Income
4. Expected Future Prices
5. Number of Consumers

Question 4

Market Demand

Answer 4

The sum of demands of all individuals willing and able to buy a particular product or service

Question 5

Inferior Goods

Answer 5

• decrease in income equals an increase in demand
• negative change
• ex: necessities

Question 6

Normal goods

Answer 6

• decrease in income equals a decrease in demand
• positive change
• ex: luxuries

Question 7

Preferences

Answer 7

Your wants and their intensities

Question 8

Demand

Answer 8

Consumer’s willingness and ability to pay for a particular product or service

Question 9

The Diamond Water Paradox

Answer 9

• what’s more valuable in providing benefit or satisfaction

Water: MB is low…TB is high
Diamonds: MB is high… TB is low

• willingness to pay depends on marginal benefit not total benefit so people are generally willing to pay more for a diamond than for water

Question 10

Equation for change in marginal benefit

Answer 10

• change in total benefit / change in quantity
  Which equals…
• TB1-TB0 / Q1-Q0

Question 11

Increase in Demand is a WHAT shift

Answer 11

RIGHT SHIFT

Question 12

Decrease in demand is a WHAT shift

Answer 12

LEFT SHIFT