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CHAPTER 4- INDIVIDUAL AND MARKET DEMAND - Coggle Diagram
CHAPTER 4- INDIVIDUAL AND MARKET DEMAND
Individual Demand
Individual demand curve
- realting quantity of good to price
price consumption curve
- utility-maximizing combinations of two goods as the price of one changes
level of utility that can be attained changes as we move along the curve
at every point on the curve- the consumer is maximising utility by satisfying that MRS = price ratio
income consumption curve
- utility-maximizing combinations of two goods as a consumer's income changes
inferior good
increase in a person's income -> less consumption of one of two goods
engle curve
- relates the quantity of a good consumed to income
normal good -> curve is upward sloping
inferior good -> downward sloping
Income and Substitution Effect
when the price of the good falls- the consumer buys more of the good that is cheaper and less of those that are more expensive(substitution effect) & they enjoy more real purchasing power(income effect)
income effect
- the effect of the change in real income on what a consumers buys
inferior good- buy less
normal good - buy more
when there are lots of different goods in the budget- the income effect is small
normal good
: income & substitution effects reinforce each other
demand curve is downward sloping
inferior good
: income and substitution effect- cause demand to move in opposite directions.
substitution effect dominates
demand curve is downward sloping
giffen good
: income and substitution effect- demand to move in opposite directions.
income effect dominates
demand curve is upward sloping
substitution effect
- effect the change in price has on what a consumer buys
Market Demand
add together all demand curves
market demand curve shifts to the right as more consumers enter the market
factors that influence the demands of many consumers will also affect the market demand
Elasticity of demand
elastic/inelastic/unit elastic/ isoelastic
Consumer Surplus
difference between what a consumer is willing to pay and amount actually paid
total benefit- total cost
1/2 X B X H
Network Externalities
when an individual's demand depends on the purchases of other individuals
positive network externalities
bandwagon effect
get something because others have it
demand grows as a response to the growth of purchases by other individuals
negative externalities
snob effect
own an exclusive/unique good
demand falls in reponse to the growth of purchases by other consumers
